By Aebra Coe

Law360, New York (November 03, 2014, 6:50 PM ET) -- The U.S. Court of Federal Claims dismissed a so-called wetland mitigation bank’s $1.4 million breach of contract suit against the U.S. Army Corps of Engineers on Friday, finding that while the contract between the agency and bank was indeed valid, the lawsuit was filed eight years too late.

Under the contract governing Davis Wetland Bank LLC's restoration of a Virginia wetland pursuant to a government voucher credit program, the suit should have been filed within six years of the end of an agreed-upon period to re-evaluate the number of credits owed to Davis, which ended in 2005, the court found. As a wetland mitigation bank, Davis is “a corporate entity chartered to restore and preserve wetlands in exchange for wetlands credits from the Army Corps or an approved state agency,” according to the opinion.

Counsel for Davis Wetland Bank, Douglas E. Kahle of Wolcott Rivers Gates, told Law360 the decision is good news for mitigation bankers and bad news for Davis.

“The court reaffirmed that those banking instruments are binding contracts. That’s good for all mitigation bankers out there,” he said. “The bad news is that the court determined Davis waited years too long before seeing an attorney about filing its claim.”

This is the first case in which Federal Claims has made the determination that a mitigation banking agreement is in fact a contract, the attorney said. The same judge, a few months back, issued a decision in response to a motion to dismiss by the Corps, making that determination, he said.

“It said it disagreed with the Corps who said the agreements were nothing more than a regulatory instrument. Instead, the court  found that they are a binding contract and enforceable as a contract,” Kahle said. “What is good for all of the mitigation banks around the country — and there are hundreds of them — is now we have the Claims Court, which is the only court in the country that can decide contract disputes with the federal government, affirm that these agreements are binding contracts.”

Davis Wetland Bank sued the government in 2013, after it was denied $1.4 million in additional credits under the wetland restoration voucher system. The bank had received other credits several years earlier, but argued that it was due more after it completed the restoration, which included planting trees in the wetland that took 13 years to mature.

The credits can be traded among companies required by the Clean Water Act to complete restoration after discharging pollutants into federal waters.

In its motion for summary judgment, the government argued that the contract between the government and the bank specified that a review of the mitigation credits should occur at the end of a five-year period.

But the bank said it had the option to extend the time in which it was monitored by the Corps, effectively pushing back the re-evaluation requirement by several years.

By 2003, the bank began to struggle to maintain eligibility in the mitigation program, then continued to struggle as two members of the bank mortgaged the mitigation site and defaulted on the loan, leading to the foreclosure sale of the site and the Army Corps’ suspension of the bank from the mitigation program in 2006.

The bank argued that the monitoring period did not run while it was suspended from the program from 2006 until 2009 and so the re-evaluation could not have occurred until 2009, which is when the bank contends its six-year statute clock began to tick.

But the court disagreed, saying the monitoring period was separate from the Army Corps' re-evalution requirement, which arose at the end of the contract’s fifth year.

Davis Land Bank was represented by Douglas E. Kahle of Wolcott Rivers Gates.

The government was represented by Meen Geu Oh of the U.S. Department of Justice.

The case is Davis Wetlands Bank LLC v. USA, case number 13-268C, in the U.S. Court of Federal Claims.

--Editing by Mark Lebetkin.

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