     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
inadvertently result from an agency acting simultaneously in 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 land-
owning 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
proceeding1 that 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 I2 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
summary judgment. 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 of soggy highly-vegetated non-
tidal 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 if it 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 of this 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 from banks 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 of the credits (approximately 143)to be purchased from the 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, Regulatory Divison 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 from the 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

6
 Table 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, they would
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 a mutual 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 in-
lieu 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
memorandum drafted by Nicole 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 from GLT 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 undercut the marketability of the 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 e-
mailed 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 apparently synonymous. 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 Su-

9
 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 of its 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 in-
lieu 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 was issued), 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 non-
breach 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 by ARRC 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.

                                       14
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 that Su-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 sympathize with plaintiff’s difficulty in 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

11
 ARRC specifically mentioned AS 36.30. Title 36 is entitled “Public
Contracts” while Chapter 30 is entitled “State Procurement Code.”

                                       15
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



12
 28 U.S.C. § 1346(b) (2013).
13
  In 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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