In the United States Court of Federal Claims

No. 14-376C

(Filed: September 26, 2016)

* * * * * * * * * * * * * * * * * * *

PIONEER RESERVE, LLC,

Contracts; Environmental

Plaintiff, Mitigation Banking.

v.

THE UNITED STATES,

Defendant.

* * * * * * * * * * * * * * * * * * * *

Douglas E. Kahle, Virginia Beach, VA, for plaintiff.

Geoffrey Martin Long, Civil Division, Department of Justice,

Washington, DC, with whom were Anthony Schiavetti and Jeff Lowry, Civil

Division, Department of Justice, Washington, DC.

OPINION AND ORDER

This case illustrates the confusion and unfairness which can

inadvertentlyresult froman agencyacting simultaneouslyin both a contractual

and regulatory capacity. The agency here is the United States Army Corps of

Engineers operating through the Alaska Division (“the agency” or “the

Corps”). By statute, the Corps is given responsibility to regulate the discharge

of pollutants into waters of the United States. See 33 U.S.C. § 1344 (2016).

In order to assist it in achieving that end, it has erected an extensive regulatory

scaffold, including provisions which allow it to issue “credits” to landowners

who agree to preserve the environmental integrity of their lands. 33 C.F.R. §

332.8 (2016). Those credits can then be sold to unrelated entities that use them

as offsets against pollutant discharge in connection with construction or

dredging projects. In effect, the Corps uses its monopoly regulatory powers

to create a market of assets which otherwise would not exist. 

Plaintiff Pioneer Reserve, LLC (“Pioneer” or “plaintiff”) is a landowning entity which entered into an Umbrella Mitigation Banking Instrument
(“UMBI”) with the Corps by which plaintiff voluntarily imposed permanent

environmental protection easements on two parcels of its land in exchange for

the right to market the resulting credits. Plaintiff alleges in this Tucker Act

proceeding1that the Corps, acting in its regulatory capacity, breached that

contract by unilaterally reducing the total number of wetland mitigation credits

that plaintiff had available to sell and by changing the official classification of

those credits, thus lowering the desirability of those credits to buyers, and 

frustrating plaintiff’s plans to sell those credits to the Alaska Railroad

Corporation (“ARRC”). 

We previously held in Pioneer I

2

that the UMBI amounted to an

enforceable contract. In Pioneer II,3 we denied plaintiff’s motion for summary

judgment and granted-in-part and denied-in-part defendant’s motion for

summaryjudgment. We found that there were factual issues regarding whether

Pioneer consented to the modification of the UMBI and with respect to

damages. Trial was therefore necessary.

Trial was held in Anchorage, Alaska from June 20-25, 2016. The court

heard live testimony from numerous witnesses, including Pioneer owners and

managers Scott Walther and Calliandra Donn, various Corps employees, the

project manager for ARRC, and damages experts Charles Thompson (for

plaintiff), and Dr. Benjamin Guillon (for defendant). After post trial argument,

the matter is now ripe for disposition.

For the reasons set forth below, the court holds that defendant

unilaterally modified the terms of the contract, thereby causing a breach.

However, because plaintiff was unable to prove that it would have sold its

credits in the non-breach world, it has not demonstrated that it is entitled to any

damages as a result of the breach.

BACKGROUND

A. Factual Background

An environmental mitigation bank is created when the owner of a parcel

of land places a permanent encumbrance on the land. This encumbrance

1

 28 U.S.C. § 1491 (2012).

2 Pioneer Reserve, LLC v. United States, 119 Fed. Cl. 201 (2014).

3

 Pioneer Reserve, LLC v. United States, 125 Fed. Cl. 112 (2016).
prohibits development and requires the ongoing maintenance and/or

restoration of the land to keep it functioning biologically as it originally would

without human interference. In exchange, the owner is granted a certain

number of credits based upon an assessment of the land. Various credits are

awarded based on the type of soil and vegetative characteristics of the parcel.4

The mitigation bank can then sell these credits to entities which need to offset

environmental damage to the waters of the United States caused by

development projects. The dynamics of credit generation and sale has created

a lively market of buyers and sellers, although this phenomenon was just

getting started in southeast Alaska at the time this conflict unfolded. 

The Corps attempts to match as closely as possible the land being

affected by the development project to the land encumbered by the

environmental easements. In this regard, it considers two factors: the

characteristics of the land and its physical proximity to the impacted area,

referred to as a bank’s “service area.” Based on these factors, the Corps

identifies a mitigation bank or other entity whose credits, in its discretionary

opinion, provide the best match to offset the expected environmental impact

of the project. The Corps keeps track of the type and amount of mitigation

credits that mitigation banks and in-lieu fee providers have available using an

online database known as RIBITS, an acronym derived from the Regulatory

In Lieu Fee and Bank Information Tracking System. The Corps then plays

match-maker and points the applicant for a development permit to particular

sources from which the permitee is directed to buy credits. The Corps does not

specify a price for the credits, leaving that to the parties to negotiate. 

Pioneer is a mitigation bank located in the Matanuska-Susitna Borough

in Alaska. It is owned and managed by Scott Walther and his daughter,

Calliandra Donn. Pioneer consists of two parcels of land, the Edgerton Bank

Parcel (“Edgerton”) and the Seldon Bank Parcel (“Seldon”). Mr. Walther

4 There are various types of credits, including palustrine, riparian, and riverine.

They generally refer to the characteristics of the associated land. For example,

palustrine credits refer to wetlands that consist ofsoggy highly-vegetated nontidal areas such as marshes, bogs, swamps, bottomland forests, and small

ponds. Riverine credits refer to an actual body of water, such as a stream or

river. These credits are further broken down based upon the exact type of

foliage on the land. The Corps in Alaska classifies wetlands according to the

Cowardin classification system, but the Corps in other jurisdictions may use

other classification systems.

3
acquired both parcels in 1998 and, after considering several options for

development, decided that the land would be most valuable ifit were preserved

as a mitigation bank. In a lengthy process detailed in Pioneer I, plaintiff hired

an environmental consulting firm, Restoration and Science Engineering

(“RSE”), to help it work with the Corps to draft a map of its land, indicating

different habitats and capacity for various ecological functions. 

At the end ofthis process, Pioneer and the Corps entered into the UMBI

on September 9, 2011. PX 9 (Pioneer’s UMBI). Pioneer was assigned 151.81

wetland mitigation credits for Edgerton and 83.73 wetland mitigation credits

for Seldon.5 Of the 151.81 credits generated by the Edgerton parcel, 124.7

were classified as palustrine (with those credits being further assigned

palustrine subtypes) and the Seldon parcel generated 73.71 palustrine credits.

The Edgerton parcel also contained 4.53 riverine credits, 9.02 credits for

wetland buffer, and 6.58 credits for outer buffer. At the time Pioneer was

established, there was only one other mitigation bank in operation in this area

of Alaska, the Su-Knik Mitigation Bank (“Su-Knik”). In establishing its

mitigation bank, Pioneer worked closely with Karen Nelson, an employee of

the Corps’ Alaska Division and chair of the intra-agency review team (“IRT”)

associated with Pioneer’s mitigation bank. Starting in 2008, Ms. Nelson was

Pioneer’s primary point of contact with the Corps until she was replaced in

2012 by Nicole Hayes.

At the time plaintiff established its mitigation bank, it was aware that

ARRC had plans to build a railroad extension to Port MacKenzie, called the

Port MacKenzie Rail Extension Project (“PMRE”). The project would require

ARRC to purchase a total of 160.2 mitigation credits as an offset to the

destruction of wetlands. PX 26 (ARRC’s Permit). This construction would

occur geographically close to plaintiff’s land, which meant the impact of the

project would be in plaintiff’s primary service area, and plaintiff, from its

dealings with Karen Nelson, was under the belief that the railroad would be

obligated to buy credits from it once the permit was issued. Although both

Pioneer and Su-Knik operate mitigation banks in the Matnuska-Susitna

Borough, they do not share the same primary service area. As plaintiff’s

expert witness testified, Pioneer was the only mitigation bank that had the

impacted area as its primary service area. 

5 Seldon credits are not at issue. All references to mitigation banking credits

and modification of the UMBI hereafter relate to the Edgerton parcel.

4
As explained by witnesses at trial, both lay and expert, there are three

ways that a developer can obtain mitigation credits necessary to offset the

environmental impact of a proposed project: mitigation banking (buying

credits frombanks such as Pioneer), “in-lieu” fee providers (explained below),

and mitigation generated by the permitee on its own lands. In the case of

mitigation banking, the credit provider places a permanent encumbrance on its

land in exchange for a certain amount of credits, which it can then sell. In the

case of in-lieu fee providers, the credit provider is given provisional credits

that it can market to businesses. Once a transaction is complete, the in-lieu fee

provider has the responsibility of securing land and placing a conservation

easement on that land. The third type of mitigation, permitee responsible

mitigation, involves the permitee itself purchasing land and devising its own

conservation plan. Within these three alternatives, the Corps has expressed a

hierarchical preference, with mitigation banking considered the most

preferable, in-lieu fee providers the second most preferable, and permitee

responsible mitigation the least preferable option. 

In September of 2012, the Corps issued ARRC a permit to begin

construction of the PMRE, conditioned on its obtaining 160.2 palustrine

mitigation credits. The permit ranked available credits in terms of ecological

and geographic preference. Credits from Pioneer’s Edgerton parcel were the

most preferred, Su-Knik’s credits were the second most preferred, and credits

from Pioneer’s Seldon parcel were ranked third. PX26 at 40. At the time, at

least according to the UMBI, the Edgerton parcel had available 124.7 assigned

palustrine credits and the Seldon parcel had 73.71 assigned credits available.

The record is unclear with respect to how many of Su-Knik’s 1,891.1

originally-assigned palustrine credits it had available at this time. JX 1 at 20-21

(Su-Knik’s UMBI). 

Despite the fact that the UMBI previously had awarded Pioneer 124.7

palustrine credits with respect to the Edgerton parcel, the permit required

ARRC to purchase only 16.92 palustrine credits from that parcel, with the

remainder ofthe credits (approximately 143)to be purchased fromthe Su-Knik

bank. None were to be purchased from Seldon. After trial, it is clear that

ARRC was directed to buy only 16.92 credits from Pioneer because, at the

time the permit was issued, and unbeknownst to Pioneer, the Alaska District

had re-evaluated Pioneer’s Edgerton parcel to correct what the Corps

perceived to be a mapping error. This requires some background. 

In 2012, Nicole Hayes became the Field Office Supervisor for the

5
Alaska District and replaced Karen Nelson as IRT chair for Pioneer’s

mitigation bank. Upon assuming her new position, one of Ms. Hayes’ first

actions was to personally tour plaintiff’s land. PX 48 (Letter from Karen

Kochenbach,Chief, RegulatoryDivison for the Corps, Alaska Division, to Ms.

Donn). Ms. Hayes testified that, as she walked across Pioneer’s Edgerton

parcel, she compared what she was seeing to the map of the Edgerton Parcel

contained in Pioneer’s UMBI and immediately thought that the land had not

been correctly characterized in terms of its hydrological and biologic

characteristics. Id. Before the Corps’ issuance of ARRC’s permit, Ms. Hayes

and Ms. Donn initiated an exchange e-mails regarding reclassifying Pioneer’s

Edgerton parcel credits according to what Ms. Hayes believed to be the correct

classification of the land. 

On August 22, 2012, Nicole Hayes and other Corps members, along

with individuals fromthe Environmental Protection Agency, met with Pioneer

to discuss the best way of moving forward with the issue of reclassifying the

land. No solution was reached at that time. DX 41 (Notes from meeting

between Pioneer, Corps, and EPA). On September 7, 2012, Ms. Hayes sent an

e-mail to Ms. Donn with an attached map, showing the proposed changes to

the Edgerton parcel.6 DX 44 (Email conversation between Ms. Hayes and Ms.

Donn). This reflected a small reduction in overall credits and a reclassification

of a large portion of available palustrine credits, resulting in a dramatic

reduction to 16.92 palustrine credits. The former palustrine credits were

denominated as “riparian buffer.” Ms. Donn replied that the map looked

“better than [she] thought” and sent Ms. Hayes an updated table of available

credits for the Edgerton parcel reflecting the reclassification. DX 44 at 1 At

this time, however, no formal request for change was requested or made.

Despite no official change having been made to Pioneer’s UMBI when

ARRC’s permit was issued by the Corps on September 10, 2012, the permit

directed ARRC to purchase only 16.92 palustrine credits from Pioneer and

143.28 palustrine credits from Su-Knik. PX 26 at 45. In response to objections

Pioneer raised with the Corps, Lieutenant Colonel Mark DeRocchi, deputy

commander of the Army Corps of Engineers, Alaska District, testified that

when he looked into the matter, he found that when the permit was issued on

September 10, 2012, Pioneer’s account in RIBITS showed a balance of over

6Table A-6 shows Pioneer as having 11.57 PFO1/SS1B credits, 5.25

PEM1b/PEM1C credits, and 0.10 PUB3F credits, which represent the totality

of palustrine credits available at the Edgerton parcel.

6
160 credits available for sale by Pioneer. Tr. at 554-55. DeRocchi inquired as

to why the permit required ARRC to purchase only 16.92 credits from Pioneer.

He was told that, although Pioneer’s credits had not been officially modified

by any paperwork, Nicole Hayes viewed 16.92 credits as what was saleable by

Pioneer. Id. Ms. Hayes testified that she was concerned that Pioneer’s UMBI

had misrepresented the amount of wetland mitigation the land was actually

capable of providing. Id. At 620.

The railroad succeeded in buying 143 palustrine credits from Su-Knik

for $10,000 per credit. As to the 16.92 credits ARRC was directed to buy from

the Edgerton parcel, Pioneer made an initial offer to ARRC to sell the credits

for $2.496 million. This was based on its pre-existing pricing schedule.

Pioneer offered a volume discount, reflected in the following table:

Tiered Pricing Schedule

Total Credits

Purchased Discount

Tier 1 0 - 5 $160,000.00 (base

price, no discount)

Tier 2 6 - 15 10%

Tier 3 16 - 25 20%

Tier 4 26 - 45 30%

Tier 5 46 - 70 40%

Tier 6 71 - 100 50%

Tier 7 > 100 60%

DX 36 at 1 (Pioneer’s pricing schedule). The percentages indicated in Tiers

2 through 6 reflect an increasing discount to the Tier 1 price based on volume.

Id.7

7 For example, if an entity was to purchase 25 credits from Pioneer, theywould

pay $160,000 per credit for the first 5, $144,000 per credit for the next 10, and

$128,000 for the final ten.

7
ARRC responded with an offer to purchase the credits for $346,000,

approximately $20,000 per credit, twice what it paid Su-Knik. Eventually, 

unable to reach an agreed price with Pioneer, ARRC asked the Corps to

modify its permit. ARRC argued that Pioneer’s price was prohibitively

expensive. It proposed in the alternative that it be allowed either to: (1)

purchase all of the credits from plaintiff or from Su-Knik Mitigation bank; (2)

purchase its mitigation credits from an in-lieu fee provider as an alternative to

a mitigation bank; or (3) purchase the balance of credits from Su-Knik while

opening the sale of the 16.92 remaining credits to a competitive bidding

process between Pioneer and Su-Knik. DX 55. The Corps denied ARRC’s

request on December 21, 2012, noting that, “[a]t this time, ARRC’s

modification request does not provide the Corps sufficient evidence

demonstrating compensatory mitigation costs are so prohibitive that it would

make the work authorized under the DA permit no longer practicable.” DX

58.3.

On January 25, 2013, ARRC again petitioned the Corps for a permit

modification. The request noted that “[d]espite protracted negotiations with

Pioneer Reserve, ARRC has been unable to execute amutual agreement for the

purchase of 16.92 mitigation credits.” DX 80 at 2 (Email from Jeff Schivley

of ARRC to Ms. Hayes). ARRC proposed modifying the permit to allow it to

purchase the remaining 16.92 credits from Great Land Trust (“GLT”), an inlieu fee provider. ARRC further noted that it “cannot purchase these credits

directly from Pioneer Reserve as specified by the Corps and comply with

Procurement Rules” because ARRC “is owned by the State of Alaska and as

such, it is required to comply with Procurement Rules that are based upon

competitive principles consistent with [Alaska Statute] 36.30 and industry

standards.” DX 69 at 1 (Letter from ARRC to Ms. Hayes). Subsequently, in a

memorandumdrafted byNicole Hayes, the Corps granted ARRC’s request and

allowed it to purchase 16.92 credits from GLT. DX 85.

On January 28, 2013, ARRC and GLT completed a sale for the

remaining 16.92 mitigation credits. JX 11 (Letter fromGLT to ARRC). ARRC

paid $492,101.28, or $29,084 per credit. Id. In the end, Pioneer did not sell

any of its available mitigation credits to ARRC. At the time it filed its

complaint, Pioneer had completed only two sales of mitigation credits, both to

the Alaska Department of Transportation. The first sale, on July 25, 2013, was

for 4.4 credits for a total of $347,600 ($79,000 per credit). PX 52 (First

Pioneer bill of sale to Alaska DOT). The second sale, on January 21, 2014,

was for 0.28 credits for a total of $22,120.00 (also $79,000 per credit).

8
Despite the earlier disagreements that Pioneer and the Corps had

concerning credits, on September 4, 2013, Ms. Donn e-mailed Ms. Hayes,

saying “we need to formally request that the clock starts on comments on our

draft so I would like to do that.” DX 99 at 2 (Email exchange between Ms.

Hayes and Ms. Donn). This was in reference to a revised map and table of

credits for Pioneer’s Edgerton parcel. We can only assume that Ms. Donn did

not appreciate that the reclassification undercutthemarketabilityofthe credits. 

The draft mentioned in the e-mail refers to the previously re-mapped and

revised ledger of Pioneer’s available credits. On the same day, Ms. Hayes emailed back saying that “we [the Corps] do not need anything else” and asked

Pioneer “[w]ill you be providing a signed request or is the email below serving

as the request [for modification]?” DX 99 at 1. Ms. Donn replied “[i]f the

email below is sufficient to serve as the request that would be great.” Id.

On November 4, 2013, Pioneer’s UMBI was officially modified by a

letter to Pioneer sent by Colonel Christopher Lestochi of the Corps. The letter

noted that the changes occurred “[b]ased on your request of September 4,

2013.” JX 12 (Letter from Col. Lestochi to Pioneer). The letter included a

revised table showing Pioneer’s credits generated by the Edgerton parcel. In

addition to an overall reduction of credits, from 151.80 to 151.60, Pioneer was

given a total of 36.36 palustrine-type credits. Id. The majority (92.62) of

Pioneer’s credits were newly classified as “Riparian.” Id.8 The court was

offered no explanation by either party for why the previously revised number

of palustrine credits (16.92) became 36.36 credits. By the time of the

November 2013 modification, which plaintiff seems to have requested, the

ARRC credit purchase from Su-Knik and GLT was complete.

On May 5, 2014, plaintiff filed the instant case, alleging that the Corps

8 The official amendment to Pioneer’s UMBI called these credits “Riparian.”

Previous draft versions of the A-6 credit table, such as the one drafted by Ms.

Donn and sent to Ms. Hayes in September of 2012, called these credits

“Riparian Buffer.” These terms are apparentlysynonymous. Ms. Donn testified

that she had never previously heard of riparian buffer credits, and did not

believe there was any market for them. Ms. Hayes testified that the Corps did

not have jurisdiction over the upland-type lands that make up riparian buffer

or riparian credits. Tr. 733. As noted by Ms. Hayes, the Corps cannot mandate

mitigation for upland areas because those lands are not within its jurisdiction. 

There is, then, essentially no market for riparian credits because the Corps has

no authority to compel mitigation for their destruction.

9
breached the UMBI in September 2012 when it unilaterally acted to reduce

Pioneer’s Edgerton palustrine credits from 124.7 to 16.92. Plaintiff further

alleges that, had that breach not occurred, the Corps would have directed

AARC to purchase all of Pioneer’s Edgerton parcel palustrine credits. Plaintiff

further argues that it would have been able to sell those credits for $89,000

each, and asks for a total of $12.6 million in damages.

DISCUSSION

Two issues remain. First, it must be determined whether the Corps

breached the UMBI in September 2012 when it directed ARRC to buy only

16.92 palustrine credits from the Edgerton parcel. A related inquiry is whether

the Corps unilaterally reduced the number of credits without the written

consent of Pioneer. If it is the case that the Corps unilaterally reduced

Pioneer’s marketable credits, such action would necessarily result in a breach

of contract. Second, if a breach is found, the court must determine the proper

amount of damages to be awarded to Pioneer.

A. The Corps unilaterally reduced the number of palustrine credits available

to Pioneer, thereby breaching the UMBI

The original UMBI provided Pioneer with 151.81 credits for the

Edgerton parcel, of which 124.7 credits were classified as palustrine. It is

undisputed that the UMBI was in fact modified on November, 2013,

apparently by the Corps and with Pioneer’s consent. Upon modification, the

total number of credits for Edgerton was reduced to 151.6, while the number

of palustrine credits was reduced to 36.36. That modification, however, took

place one year after the Corps directed ARRC to buy only 16.92 credits from

Pioneer’s Edgerton parcel. It is the events in September 2012, which Pioneer

relies on for its breach claim. 

Section VII G of the UMBI is entitled “Modifications” and reads in

full:

This UMBI may only be amended or modified with the written

approval of the Sponsor and the Corps. In the event the Sponsor

determines that modifications must be made in the Mitigation

Plan to ensure successful establishment and operation of the

Bank, the Sponsor shall submit a written request for such

modification to the Corps, for approval. The Corps will

10
distribute this request to the IRT to seek their recommendations.

PX 9 at 15. Thus, it is clear that in order to modify the UMBI, both parties had

to agree in writing. Unilateral modification of the UMBI would constitute a

breach of this section and the contract as a whole.

When Nicole Hayes replaced Karen Nelson as the main point of

contact, one of her priorities was to personally tour all of the mitigation bank

properties for which she was responsible. After visiting Pioneer’s mitigation

bank on May 29, 2012, Nicole Hayes and her team reviewed the wetland

delineation in the administrative record and confirmed that, in their view, large

portions of the Edgerton parcel that were classified as wetlands should have

been instead classified as uplands. Upland areas cannot generate palustrine

credits. Thus, the effect of reclassifying some of Pioneer’s land from wetlands

to uplands reduces the number of palustrine credits available for sale by

Pioneer.

The evidence shows that the Corps believed Pioneer’s UMBI to have

been incorrectly mapped. Although the Corps engaged in discussions with

Pioneer for over a year, it unilaterally, and without Pioneer’s approval, reduced

the amount of palustrine credits available for Pioneer to sell. It was not until

September 2013 that Pioneer consented to the modification of the UMBI. Prior

to then, any talk of modification had been purely in the nature of negotiation.

Although both sides exchanged revised figures and tables, nothing prior to the

September 2013 e-mail exchange between Ms. Donn and Ms. Hayes can be

fairly construed as Pioneer approving the modification of its credits. When the

modification finally took place, it was a year after the breach.9

Even though the Corps’ official database as of September 2012 showed

that Pioneer had its original, full amount of palustrine credits, the Corps

nevertheless unilaterally reduced Pioneer’s credits when it directed ARRC to

purchase only 16.92 of those credits from plaintiff. ARRC’s permit indicated

that it needed a total of 160.2 credits for the PMRE and that Pioneer’s

Edgerton palustrine credits were the most preferred and ecologically

appropriate type of credit for offset. There is no question that, if the Corps

viewed Pioneer as having more than 16.92 of these credits, it would have

ordered ARRC to purchase all of them before purchasing any credits from Su9 The government has not argued that modification of the UMBI in November

2013 constituted a waiver by Plaintiff of the prior breach.

11
Knik. Accordingly, the court finds that the Corps breached the UMBI when it

directed ARRC to purchase only 16.92 palustrine credits from Pioneer at a

point when no modification to the contract had yet been made.

B. Plaintiff Cannot Prove That It Would Have Sold All Its Mitigation Credits

In The Non-Breach World

Having determined that the actions of the Corps lead to a breach of the

UMBI, the court now turns to the issue of damages. Plaintiff contends that, had

the Corps not unilaterally acted to reduce the overall number of palustrine

credits it had available, the permit issued to ARRC would have ordered ARRC

to purchase all of Pioneer’s palustrine credits, and that it would, in fact, have

sold all of those credits to ARRC. Plaintiff asks for $89,000 per credit in

damages for a total of $12,655,800, based upon a presumed sale of 160.2

credits, the number of credits the railroad needed.10 

It is notable that plaintiff offered no alternative scenario for damages

other than the sale to the railroad and no alternative valuation method than the

use ofits advertised pricing schedule. This is perhaps understandable because,

although the mitigation credits have real value, the owner’s ability to exercise

those credits is controlled by the Corps. In this instance, during the

approximately one year period between breach and modification, plaintiff

offers evidence of only one project for which the Edgerton credits would have

had any utility–the PMRE. 

To support its credit pricing, plaintiff offered the expert report and

testimony of Charles Thompson, the co-owner and principal of Eco-Capital

Advisors, LLC, a financial advisory and private equity firm based in Atlanta,

Georgia. In his career, Mr. Thompson has been involved in hundreds of

individual transactions involving the sale of mitigation credits. Defendant

proffered Dr. Benjamin Guillon as its expert witness. Dr. Guillon is currently

the managing director of the conservation finance department at WRA, Inc.,

a consulting group for developing and managing mitigation and conservation

banks, and spent three years as the head of the company’s mitigation banking

department. Dr. Guillon testified that he has personally supervised the

development and management of over 10 mitigation banks and conducted due

10 It is not clear why plaintiff would use the total number of credits the railroad

needed, when the maximum number of palustrine credits available from the

Edgerton parcel was 124.7.

12
diligence on over 100 different mitigation banks. The court found both Mr.

Thompson and Dr. Guillon to be credible expert witnesses.

Mr. Thompson looked to several factors in reaching his conclusion that

$89,000 represented a fair market value for one of Pioneer’s palustrine credits,

and that the range of values for one of Pioneer’s credits was $79,000 to

$167,000. PX 64 at 11 (Plaintiff’s Expert Report). First, Mr. Thompson looked

at historical credit sales in the region, including the Anchorage bowl area. 

While noting that land in the Anchorage area generally represented higher

value property than land in the Matanuska-Susitna Borough where Pioneer’s

land is located, Mr. Thompson believed that Pioneer’s land was more

comparable to land in the Anchorage bowl area due to the fact it was fully

developable for residential and/or commercial use. Id. Because in-lieu fee

generated credits had been sold by GLT for Anchorage bowl projects for

$167,000 per credit, Mr. Thompson believed that value to be the high end of

the range for Pioneer’s credits. Mr. Thompson next looked at the underlying

tax-assessed land value. Based on the knowledge that ARRC thought it was

reasonable to pay Su-Knik $10,000 per credit, Mr. Thompson looked to the

average per acre tax assessed value for Su-Knik’s land, which he determined

to be $426. He then divided $10,000 by $426 and found that the credits were

priced at a multiple of approximately 23 times the underlying land’s taxed

assessed value. Applying this same multiplier to Pioneer’s tax assessed value

per acre of $4,969, this would place a value of approximately $114,000 per

credit on Pioneer’s palustrine credits. PX 64 at 12.

Mr. Thompson finally looked at credit sales completed by Pioneer (two

sales of palustrine credits to the Alaska DOT for $79,000 per credit), and

Pioneer’s pricing schedule, which would have yielded a value of $89,000 per

credit based upon a sale of 160.2 credits. PX 64 at 12. Mr. Thompson also

opined that he did not think the pricing offered by Great Land Trust ($29,000

per in-lieu fee advance credit) was a proper comparison to Pioneer’s credits

because Pioneer offered mitigation credits while GLT offered credits as an inlieu fee provider. He also opined that, when looking at mitigation costs as an

overall percentage of the budget of a project, a cost of $89,000 per credit

would have been within the industry standard. PX 64.

Dr. Guillon, on the other hand, opined that, as of September 10, 2012

(the date the permit wasissued), Pioneer’s credits were worth between $12,217

and $29,084 per credit. DX 125 at 4 (Defendant’s Expert Report). In reaching

this conclusion, Dr. Guillon looked at the price points of potential competitors

13
(in this case, GLT’s sale of in-lieu fee credits to ARRC at $29,084 per credit

and Su-Knik’s pricing of $10,000 per credit), as well as a discounted cash flow

valuation, which looked to Pioneer’s price structure and reasonable revenue

expectations. Id. at 18. Dr. Guillon looked to all of Pioneer’s expenses

associated with starting the mitigation bank such as consulting fees, the loss

of value in the land as a result of restricting it with an easement, and the cost

of ongoing maintenance and taxes. He also considered the discount rate, which

is the target nominal internal rate of return a mitigation bank would expect to

get on its investment. Id. at 25. After looking at a variety of risk factors, Dr.

Guillon concluded that 25% would be an appropriate nominal discount rate.

Id. at 26. Based on this, Dr. Guillon concluded that an investor seeking to

generate an annual return of 25% on his investment in Pioneer’s land would

have priced each credit at $12,217. Id.

It is unnecessary for us to resolve the disagreement between Mr.

Thompson and Dr. Guillon. Even if Mr. Thompson’s figures can be justified,

the fact is that plaintiff had competition in September 2012 from at least two

other sources willing to undercut its prices. The railroad was not obligated to

pay more than it had to, and indeed, it took the position that doing so would

run afoul of state procurement regulations. The critical flaw in plaintiff’s

attempt to prove damages is that it has not made a showing that, absent the

breach of contract, it would have been able to sell any, much less all of its

Edgerton parcel palustrine credits to ARRC for $89,000 per credit. In a nonbreach world, Pioneer would have had 124.7 palustrine credits available for

sale from its Edgerton parcel. Yet, despite over five months of negotiation

regarding the price of credits, Pioneer and ARRC could not consummate the

sale of even 16.92 credits. On September 17, 2012, Pioneer’s initial offer was

sent to ARRC, and the offer proposed the sale of 16.92 palustrine credits for

a total of $2,496,000.00, or an average price of $146,823.53 per credit. DX

50.13. This offer was rejected byARRC because ARRC believed the price was

too high. On January 22, 2013, ARRC sent out its final quotation request to,

among others, Pioneer. DX. 78.1 On January 25, 2013, Pioneer e-mailed its

final offer to ARRC, in which it proposed to sell the credits for a price of

$122,576.83 per credit, a total of $2,074,000.00. JX 10. This price was over

four times as expensive as the next highest offer, $492,101.28 (an average of

$29,084 per credit) from GLT. JX 9. 

In support of $89,000 as a plausible price, plaintiff points to the fact

that, in 2013, it sold approximately five palustrine credits to the Alaska

Department of Transportation for a price of $79,000 per credit. We disagree. 

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Assuming that the Corp would order ARRC to first purchase all of Pioneer’s

Edgerton palustrine credits, that is only 124.7 credits and still short of the

160.2 credits ARRC was required to purchase. ARRC would then have to

purchase the remaining balance of credits from Su-Knik as the second most

preferable option. Using Pioneer’s tiered pricing schedule, the price for 124.7

credits would be $12,140,800 total, or $97,360.06 per credit. It is unlikely that

ARRC would have agreed to purchase credits for $89,000, or even $79,000,

much less $97,360.06, given its knowledge thatSu-Knik was selling mitigation

credits for $10,000, not to mention its requirement to comply with state

procurement rules. DX 69.1.11 Dr. Guillon reached this same conclusion in his

expert report, noting that “if ARRC had been directed to purchase 160.2

credits from Pioneer reserve at $90,287.14 per credit, which is almost 10 times

as many as ARRC refused to purchase at $88,094.12 per credit, there is strong

reason to think that ARRC would have sought a modification and initiated a

bidding process, similar to the process that was later initiated by ARRC for the

16.92 credits.” DX 125.16.

In the breach world, after months of negotiations with ARRC, Pioneer

faced making a do-or-die offer for the sale of 16.92 credits. It offered those

credits for $122,576.83 per credit, and did so knowing that, if an agreement

was not reached, it would lose out on the opportunity to sell these credits to

ARRC. The simple fact is that Pioneer was unwilling to lower its price into a

range that ARRC would have found acceptable. Accordingly, plaintiff has

failed to adequately prove a non-breach world in which Pioneer and ARRC

would have reached a deal for the sale of 124.7 credits at $89,000 per credit

when, in the breach world, they could not even consummate a deal for 16.92

credits. The breach did not cause that loss. Plaintiff chose to build its damages

model around its own pricing schedule without taking into account the fact that

it was responsible for electing not to consummate a deal at a price ARRC was

willing to pay. Having been presented no alternative means of measuring the

damage caused by the breach, we must conclude that plaintiff has not proven

that it suffered any damage. 

We sympathizewith plaintiff’s difficultyin proving damages for breach

of contract with respect to a property interest as unique as mitigation credits. 

In some respects what the agency did here sounds more in the nature of a

taking of property, or interference with a business relationship, or improper

11ARRC specifically mentioned AS 36.30. Title 36 is entitled “Public

Contracts” while Chapter 30 is entitled “State Procurement Code.”

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administrative action. But the underlying relationship here is, indeed,

generated by a contract, making a constitutional taking approach problematic

(and, in any event, unasserted); interference with a business relationship is a

tort over which this court would not have jurisdiction and which in all

likelihood would run afoul of government defenses in a Tort Claims Act12

proceeding; and we previously held that the plaintiff could not proceed in this

court with a challenge to the agency’s actions in reexamining the classification

of the land included in the mitigation bank.13 We note as well, that it would

have been impossible to assert a breach of contract claim after November

2013, when Pioneer consented to a modification to the UMBI. Plaintiff was

thus boxed into a contract proceeding for events prior to the agreed-upon

modification, but it then elected to frame its damages claim entirely around a

lost sale opportunity with the railroad. The fact that both experts thus attribute

some value to the extinguished credits does not advance plaintiff’s claim,

which was an all-or-nothing approach built on an unproved assumption–that

the sale to the railroad would have been consummated, but for the breach. 

CONCLUSION

For the reasons set forth above, the court finds that, although defendant

breached the UMBI when it acted unilaterally in reducing the number of

available credits that plaintiff had available for sale, Pioneer has not proved

that, in the non-breach world, Pioneer and ARRC would have come to an

agreement for the sale of credits. Accordingly, plaintiff has failed to prove

damages and we must award judgment for the defendant. The clerk of court is

directed to enter judgment accordingly. No costs.

s/Eric G. Bruggink

ERIC G. BRUGGINK

Senior Judge

1228 U.S.C. § 1346(b) (2013).

13In Pioneer II, the court rejected the plaintiff’s attempt to challenge the

actions of the Corps, holding that “we agree with defendant’s argument that

the regulations afford the Corps some level of discretion, which insulates its

PMRE permit decision from collateral scrutiny in an action here for damages.”

Pioneer II, 125 Fed. Cl. at 118. 

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