     In the United States Court of Federal Claims
                                  No. 14-376C
                           (Filed: February 16, 2016)

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

PIONEER RESERVE, LLC,
                                               Clean Water Act; mitigation
              Plaintiff,                       bank; contract interpretation;
v.                                             incorporation of contract
                                               terms; breach of contract; 33
THE UNITED STATES,                             C.F.R. § 332.3
              Defendant,

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

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

       Geoffrey Martin Long, Civil Division, Department of Justice,
Washington, D.C., with whom were Steven J. Gillingham, Assistant Director,
Robert E. Kirschman, Jr., Director, and Benjamin C. Mizer, Principal Deputy
Assistant Attorney General, for defendant.
                            _______________

                                 OPINION
                              _______________

BRUGGINK, Judge.

       Pioneer Reserve, LLC (“Pioneer” or “plaintiff”) brings this breach of
contract case against the United States Government (“defendant”) pursuant to
the Tucker Act, 28 U.S.C. § 1491. Plaintiff, the sponsor of the Pioneer Reserve
Wetland Mitigation Bank, claims that the Umbrella Mitigation Banking
Instrument (“UMBI”) entered into between Pioneer and the United States
Army Corps of Engineers, Alaska District (“Corps”), was an enforceable
contract between the parties, which the Corps breached. The government
previously moved to dismiss on the grounds that the UMBI was not a contract.
We rejected that argument. See Pioneer Reserve, LLC v. United States, 119
Fed. Cl. 201 (2014). Pending are the parties’ motions for summary judgment.
The matter is fully briefed, and oral argument was held on January 6, 2016.
For the reasons stated below, we deny plaintiff’s motion for summary
judgment, and we grant in part and deny in part defendant’s motion for
summary judgment.

                              BACKGROUND

       The facts and statutory background of this case have been set out at
length in our previous opinion, in which we denied defendant’s motion to
dismiss plaintiff’s complaint. Id. We will therefore provide an abridged
statement of the facts related to the pending motions.

       The UMBI

       The UMBI, signed September 9, 2011, “describes the establishment,
use, operation, maintenance and long-term management of the Pioneer Reserve
Wetland Mitigation Bank.” Def.’s App. 8. It provides that it “is an agreement
made and entered into by Pioneer Reserve, LLC (Sponsor) and the U.S. Army
Corps of Engineers, Alaska District (Corps).” Id. The instrument establishes
two parcels that comprise the Bank: the Seldon Bank Parcel and the Edgerton
Bank Parcel. Id. It indicates that the Edgerton Parcel, the parcel at issue here,
contained 165.8 acres, 134.6 of which were wetlands and 31.2 of which were
uplands.

        The instrument certifies 83.73 credits in the Seldon Bank Parcel and
151.81 credits in the Edgerton Bank Parcel. Id. at 17. There are several types
of credits: palustrine, riparian, and marine.1 These credits can be purchased by
third parties in order to offset environmental impacts to the same or similar
type of habitat. Of Pioneer’s 151.81 Edgerton Parcel credits, 124.7 were
palustrine. Id. The instrument classified the rest of the parcel as uplands,
riparian credits, or “buffer zones,” which are zones that lie in between other
classifications.

      The instrument characterizes itself as a “legally binding and enforceable
agreement between the District Engineer of the Corps, and a mitigation bank
sponsor that formally establishes the mitigation Bank and stipulates the terms
and conditions of its construction, operation, use and long-term management.”


1
  Palustrine is a wetland system that consists of soggy highly-vegetated
non-tidal areas such as marshes, bogs, swamps, bottomland forests, and small
ponds. Marine wetlands are saltwater coastal wetlands. Riparian wetlands are
those situated between land and a river or stream.
Id. at 12. It further states that the instrument “may only be amended or
modified with the written approval of the Sponsor and Corps.” Id. at 15.

        The UMBI was amended in November 2013. Id. at 586. The effect of
the amendment was to change the characterization of certain portions of
Pioneer’s Edgerton Parcel from wetlands to uplands. Id. at 546, 586. Plaintiff
contends that the net result was to eliminate all but 16.92 palustrine credits
with respect to the Edgerton Parcel. Defendant, however, maintains that the
amendment resulted in nothing more than a change in mapping and
classification.

       The parties disagree about how the amendment came about and whether
the change was bilateral. Defendant contends that plaintiff agreed to the
change, but plaintiff denies that. There is no question that the amendment
followed numerous discussions between Calliandra Donn, Pioneer’s Principal,
and the Corps. In September 2012, Nicole Hayes, a representative of the
Corps, emailed Donn the map revision that the Corps was considering. Pl.’s
App. 71. Hayes had visited the property, which apparently caused her to be
concerned that areas mapped as wetlands were actually uplands.

        Donn initially responded favorably, apparently under the impression
that the proposed revisions would actually give Pioneer more of a preferable
type of credit. Def.’s App. 237 (Excepts of deposition testimony of Calliandra
Donn). She subsequently sent Hayes a revised table A-6, showing credit
calculations for Pioneer’s Edgerton Parcel, which she had updated to reflect
the Corps’ map revisions. Pl.’s App. 73. Hayes emailed Donn again in October
2012, informing Donn that the Corps was still waiting on internal review. Id.
at 83. In May 2013, the Corps sent another letter to Donn. This letter
mentioned the proposed changes to Pioneer’s mitigation bank as well as
Pioneer’s concerns regarding these changes. Id. at 84-85. Although the record
presents no earlier reference to Pioneer declining to modify the UMBI, the
May 2013 letter further requested that Pioneer reconsider declining the
opportunity to modify the UMBI. Id. at 85. The Corps warned that “without a
modification to the [UMBI], the Corps intends to suspend credit sales for the
incorrectly designated portions of this parcel in accordance with Section VII.
N. of the Umbrella MBI.” Id.

       Following the events detailed above, the Corps issued the amended
UMBI in November 2013. Def.’s App. 586. Whether plaintiff signed off on
this change is an issue which we discuss in detail later.

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       The Alaska Railroad Corporation’s § 404 Permit

       When it created the mitigation bank, plaintiff was aware that the Alaska
Railroad Corporation (“ARRC”) planned to construct a railroad extension that
would impact wetlands and other water resources, triggering a need for
mitigation credits. This railroad extension, called the Port MacKenzie Rail
Extension Project (“PMRE”) would be located within the service area of
Pioneer’s mitigation bank, thus satisfying the requirement that compensatory
mitigation “be located within the same watershed as the impact site . . . .” 33
C.F.R. § 332.3(b)(1) (2015).

        Indeed, ARRC was issued a Department of the Army (“DA”) permit
pursuant to Section 404 of the Clean Water Act, 33 U.S.C. § 1344, on
September 10, 2012, authorizing “the discharge of 1,618,587 cubic yards of
fill material into 95.8 acres of waters of the U.S., including wetlands, as part
of the construction of a 35.8-mile rail line . . . .” Def.’s App. 386. The permit
was conditioned on ARRC purchasing a total of 160.2 wetlands credits. Id. at
389. It directed that 16.92 palustrine credits be purchased from Pioneer, and
143.38 palustrine credits be purchased from the Su-Knik Mitigation Bank
(“Su-Knik”). Id. According to the deposition of Lieutenant Colonel Mark
DeRocchi, a member of the Corps, the Corps directed ARRC to buy most of
its credits from Su-Knik because the Corps was under the impression that
Pioneer had only 16.92 credits to sell. Pl.’s App. 39. Benjamin Soseith, a
member of the Corps and project manager for the PMRE permit, stated in his
deposition that Pioneer had only 16.92 credits to sell which were of the type
appropriate to mitigate the PMRE's impacts. Id. at 30.

       The permit is accompanied by a record of decision (“ROD”), which
contains a section explaining the preference for compensatory mitigation for
the PMRE project. Def.’s App. 495. This section explains that similar habitat
credits of Pioneer’s Edgerton parcel are the ecologically preferred source of
compensatory mitigation, and notes that this parcel “contains some credits of
the same habitat type that support the Little Susitna Watershed (33 C.F.R. §
332.3(a)-(c)) where the PMRE is located.” Id. It listed as the second most
ecologically preferred source of compensatory mitigation similar habitat
credits of Su-Knik’s Big South Lake parcel. Id.

      After its permit was issued, ARRC entered into negotiations with
Pioneer in an attempt to reach agreement on a price for the 16.92 Edgerton

                                       4
palustrine credits. Id. at 561. Pioneer asked for approximately $146,800 per
credit for the 16.92 credits, for a total of $2.496 million. Id. at 241. ARRC, on
the other hand, offered a much lower price of $346,000 total. Id. Unable to
reach agreement with Pioneer at what ARRC viewed to be a reasonable price,
ARRC submitted a request to the Corps for modification of its DA permit. Id.
at 560. In its request, ARRC explained that purchasing credits from Pioneer
was cost prohibitive. Id. at 561. It proposed three alternatives: (1) allow ARRC
to purchase its 160.2 credits from either Pioneer or Su-Knik; (2) allow ARRC
to use an in-lieu fee provider as an alternative to a mitigation bank; or (3)
allow ARRC to purchase the 16.92 credits it was directed to purchase from
Pioneer from either Pioneer or Su-Knik through a competitive bidding process.
Id. ARRC later withdrew its initial request and submitted a new one, limited
to a request that it be permitted to purchase the 16.92 credits from Great Land
Trust instead of Pioneer. Id. at 573. The Corps approved the latter request on
January 28, 2013. Id. at 577. ARRC then went ahead with its purchases from
entities other than Pioneer.

       Plaintiff filed suit on May 5, 2014, asserting that the amendment to the
UMBI and the Corps’ failure to adhere to applicable regulations constituted a
breach of contract. We denied defendant’s motion to dismiss on November 21,
2014. The parties’ cross-motions for summary judgment were subsequently
filed on October 21, 2015.

                                DISCUSSION

        In its current motion, plaintiff argues that the Corps breached the
contract in two ways: by unilaterally reducing the number of credits available
for sale in Pioneer’s Edgerton Bank Parcel and by failing to make use of
Pioneer’s mitigation bank credits in accordance with 33 C.F.R. § 332 (“the
Final Rule”), which plaintiff alleges was incorporated into the UMBI. As a
result of the breach, plaintiff contends that it suffered direct damages in the
form of lost profits of $12,655,800.

       Regarding the unilateral reduction of credits, plaintiff argues that it
never consented to the modification of the UMBI. Therefore, the Corps’
reduction of plaintiffs’ available palustrine credits constituted a breach.
According to plaintiff, had the number of credits not been reduced, ARRC
would have purchased them.

       Plaintiff’s argument with respect to the Final Rule is that it was

                                       5
incorporated into the UMBI and that the Corps violated the regulations by
directing ARRC to purchase credits from an out-of-service mitigation bank
when Pioneer had credits available. Plaintiff also contends that, because
Pioneer’s bank credits were the highest-rated source of compensatory
mitigation, the regulations required the Corps to direct ARRC to purchase
them. Thus, by failing to adhere to the regulations, plaintiff argues, the Corps
breached the UMBI.

        Defendant begins by repeating an argument we rejected earlier, namely,
that it did not assume any contractual duty by entering into the UMBI.
Recognizing that the law of the case for now is that the UMBI is a contract, it
goes on to make other arguments. It first argues that a unilateral reduction of
credits never occurred. Instead, it contends that the revision of UMBI Table
A-6 to reflect a different number of palustrine credits was agreed to by
Calliandra Donn, Pioneer’s principal. I.e., the amendment to the UMBI was
bilateral.

        Defendant also makes a number of counter-arguments with respect to
plaintiff’s contention that the Corps’ regulatory actions with respect to
ARRC’s permit process constituted a breach of the UMBI. Defendant begins
by challenging the assertion that the Final Rule was incorporated into the
UMBI, but goes on to argue that even if it was, the incorporation was not
specific enough to convert the regulatory obligations with respect to ARRC
into contract terms with plaintiff. In defendant’s view, the Corps’ ability to
determine appropriate compensatory mitigation for a DA permit, particularly
for a third party, is separate and distinct from the UMBI and, equally
important, the Corps is clothed with substantial discretion on the regulatory
side which precludes any concerns plaintiff might raise in enforcing the
UMBI.

         Defendant further argues that, as a result of the decision of the United
States District Court for the District of Alaska in Walther v. United States,
2015 WL 6872437 (D. Alaska Nov. 9, 2015), collateral estoppel precludes
plaintiff from proving causation in connection with its breach claim. In that
case, plaintiff challenged the validity of Su-Knik’s banking credits, arguing
that it suffered economic injury as a result of the Corps’ failure to adhere to the
applicable regulations. Defendant argues here that the District Court’s decision
in Walther–that the permittees were unlikely to have purchased Pioneer’s
credits even if they had been available and that the Corps did not violate the
terms of the UMBI during its determination of appropriate compensatory


                                        6
mitigation for the PMRE permit–forestalls plaintiff’s causation argument in
the current case.

        This court will only grant summary judgment “if the movant shows that
there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Rules of the Court of Federal Claims
(“RCFC”) 56(a). We therefore will examine the facts to determine whether a
genuine dispute exists regarding any element of Pioneer’s claim.

       Whether the UMBI Was Breached

        A threshold question concerns the terms of the contract. Specifically,
did Pioneer agree to the amendment, and was the Final Rule incorporated as
part of the contract? If Pioneer did not agree to the amendment, then because
of the instrument’s requirement that it “only be amended or modified with the
written approval of the Sponsor and Corps,” the Corps breached the contract
by unilaterally amending it. If the Final Rule was incorporated into the UMBI,
then the Corps breached the agreement only if it did not adhere to the Final
Rule in its decision-making related to the PMRE permit.

       A. UMBI Modification

       Thus, we must first decide whether Pioneer breached the UMBI through
a unilateral modification to the number of credits Pioneer had available to sell
from its Edgerton Parcel. This is answered in part by the fact that the UMBI
clearly states that it “may only be amended or modified with the written
approval of [Pioneer] and the Corps.” Def.’s App. 22. The UMBI was in fact
amended in November 2013. Id. at 586. Therefore we must determine whether
both Pioneer and the Corps consented to this modification. We will only grant
summary judgment if there is no genuine dispute of material fact regarding
whether both parties consented to the modification.

       The original UMBI provided Pioneer with a total of 151.81 credits in
its Edgerton Parcel. Id. at 52. Of these 151.81 credits, 124.7 were palustrine.
Id. After the modification took place, the Edgerton Parcel was left with a total
of 151.6 credits, 36.36 of which were palustrine. Id. at 588. During 2012 and
2013, there were numerous communications between Calliandra Donn and the
Corps regarding the modification to the UMBI. Pl.’s App. 71-85. At one point
during these communications, Donn provided the Corps with an updated table



                                       7
A-6, reflecting the new proposed credit numbers in Pioneer’s Edgerton Parcel.2
Def.’s App. 247. Donn, however, contends that at this point in time, she was
unaware of the impact of the changes to the UMBI. Id. at 237 (Excerpts of
deposition testimony of Calliandra Donn). Subsequent to this event, the Corps
sent Donn a letter mentioning Pioneer’s disagreement with the proposed
modifications. Id. According to Donn’s later declaration, the Corps had
informed her that it was only considering a technical mapping change, and
Pioneer was unaware that any proposed changes would have an effect on the
number, type, or value of Pioneer’s credits. Id. at 121.

       Based on the facts provided, there is no clear proof that Pioneer
consented to the modification of the UMBI. As a result, there are fact issues
that preclude summary judgment for defendant on the basis of consent to the
modification.

       B. Final Rule Incorporation

       To the extent that plaintiff argues that the Final Rule was incorporated
into the UMBI and thus that the UMBI was breached through the Corps’
decision to direct ARRC to buy only 16.92 credits from Pioneer and the rest
from Su-Knik, we disagree. To incorporate extrinsic material by reference, a
contract

       must explicitly, or at least precisely, identify the written material
       being incorporated and must clearly communicate that the
       purpose of the reference is to incorporate the referenced material
       into the contract (rather than merely to acknowledge that the
       referenced material is relevant to the contract, e.g., as
       background law or negotiating history).

Northrop Grumman Inform. Tech., Inc. v. United States, 535 F.3d 1339, 1345
(Fed. Cir. 2008). The UMBI, under the heading “II. AUTHORITIES” provides
that “[t]he establishment, use, operation, and maintenance of the bank will be
carried out in accordance with . . . [the Final Rule] . . . .” Def.’s App. 9. This
statement does not explicity indicate that the parties intended to incorporate the
Final Rule as an enforceable term of the contract. A contract must always be

2
 However, the revised Table A-6 sent by Donn to Hayes is not the same as the
revised Table A-6 actually adopted in the modifications to the UMBI.
Compare Def.’s App. 247 with Def.’s App. 588.

                                        8
carried out in accordance with applicable law; this reference does no more than
point out the Final Rule as relevant background law.

        Notwithstanding whether the Final Rule was incorporated into the
UMBI, 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. The Corps has discretion in
determining appropriate compensatory mitigation methods associated with a
specific DA permit.3 See 33 C.F.R. § 332.3. Thus, the regulations allowed the
government discretion to determine which type of compensatory mitigation
was most appropriate for the PMRE project, meaning that the Corps was not
contractually bound to a third party (Pioneer) to require ARRC to buy
Pioneer’s credits. The UMBI does not supersede this discretion, as it states
that it “does not in any manner affect statutory authorities and/or
responsibilities of the signatory parties.” Def.’s App. 9. Defendant is thus
entitled to partial summary judgment as to the incorporation issue.

       If the UMBI was Breached, Whether it Caused Plaintiff’s Damages

         Plaintiff assumes that, but for the breach, ARRC would have purchased
all of its credits for its PMRE impacts from Pioneer at a price of $79,000 per
credit. Plaintiff bases its credit price upon two prior sales of its mitigation bank
credits to the Alaska Department of Transportation, one in July 2013 and one
in January 2014. Both sales involved a price of $79,000 per credit.



3
  While plaintiff is correct that the regulations do mandate certain
considerations to be made when selecting appropriate compensatory
mitigation, plaintiff fails to recognize that several subsections of the
regulations also operate to give the Corps discretion notwithstanding the
required considerations. For example, plaintiff points to the regulations’
requirement that mitigation be “in-kind,” meaning that it is of the a similar
type as the impacted resource. Br. in Supp. of Pl.’s Mot. for Summ. J. 20.
However, there is no such requirement; the regulations merely provide that in-
kind mitigation is preferable to out-of-kind mitigation. 33 C.F.R. §
332.3(e)(1). Plaintiff further refers to 33 C.F.R. § 332.3(b), which provides
that when considering mitigation options, the Corps must give preference to
requiring use of a mitigation bank’s credits as mitigation if the environmental
impacts are located within the bank’s service area. See id. § 332.3(b)(1).
Again, this is merely a preference rather than a requirement.

                                         9
        Defendant responds that this is, at best, speculative, because ARRC had
other compensatory mitigation options aside from Pioneer’s Edgerton Parcel
credits which it could have utilized to mitigate the PMRE impacts. It points out
two sales that plaintiff ignores–Su Knik’s sale of 143.28 credits to ARRC at
$10,000 per credit and GLT’s sale of 16.92 credits to ARRC at $29,084 per
credit.

        In support of the motions on this issue, we have the following facts: The
PMRE permit was issued on September 10, 2012, directing ARRC to buy
16.92 credits from Pioneer’s Edgerton Parcel and its remaining credits from
Su-Knik. Def.’s App. 389. According to Lieutenant Colonel Mark DeRocchi,
a member of the Corps, the Corps directed ARRC to buy most of its credits
from Su-Knik because Pioneer had only 16.92 credits to sell. Pl.’s App. 39.
Benjamin Soseith, another member of the Corps who served as project
manager for the PMRE permit, stated that Pioneer had only 16.92 credits to
sell that were of the type appropriate to mitigate the PMRE’s impacts. Id. at
30. The ROD for ARRC’s permit included an evaluation of the most
ecologically preferred options for compensatory mitigation, which found that
Pioneer’s Edgerton Parcel was the most preferred option, followed by Su-
Knik’s Big South Lake Parcel. Def.’s App. 495. We also know that, on
November 9, 2012, ARRC requested a modification to its permit, citing in part
the fact that it viewed purchasing 16.92 of Pioneer’s credits at approximately
$146,800 per credit as cost prohibitive. Id. at 560-65.

        Leading up to the issuance of the PMRE permit were discussions
between Hayes and Pioneer, as well as between Hayes and the bank’s
interagency review team (“IRT”), which is the entity involved in creating the
UMBI, regarding a possible reclassification of some areas of Pioneer’s
Edgerton Parcel. These discussions were triggered by Hayes’ visit to the
Edgerton Parcel in May 2012, during which she discovered that areas mapped
as wetlands were actually uplands. Id. at 544. Hayes expressed these concerns
to the IRT via email in July 2012. Id. at 549. On September 7, 2012, Hayes
sent an email to Donn notifying her of the UMBI revision that the Corps was
considering, which reclassified portions of the Edgerton Parcel. Id. at 552.
Even if this arguably breached the UMBI, what it nevertheless exposes is the
possibility that the Corps would not have been bound, in its permitting
capacity, to consider 124.7 of the Edgerton credits as “like” palustrine credits
appropriate to mitigate the impacts of the PMRE.

       In short, even if we found that there was a breach, fact issues are

                                       10
present. For plaintiff to prevail and show that the alleged breach did in fact
cause Pioneer’s damages, it would need to provide more information regarding
other available compensatory mitigation options for the PMRE project and
facts indicating that Pioneer’s credits were the most likely option–notably, a
showing that the improper classification of the Edgerton Parcel’s uplands areas
as wetlands did not render Pioneer’s credits unsuitable to mitigate the impacts
of the PMRE. Additionally, this court would require evidence that the ADOT
impacts are similar to the PMRE impacts such that they warrant similar credit
types and prices. Defendant, on the other hand, has failed to present evidence
showing that as a matter of law, plaintiff cannot prove damages.

                               CONCLUSION

       For the foregoing reasons, we deny plaintiff’s motion for summary
judgment, and we grant in part and deny in part defendant’s motion for
summary judgment. The parties are directed to confer and propose by March
8, 2016, jointly if possible, a schedule leading to trial in October 2016.



                                                  s/Eric G. Bruggink
                                                  ERIC G. BRUGGINK
                                                  Judge




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