            In the United States Court of Federal Claims
                                         No. 08-117L

                                   (Filed: March 14, 2014)

**********************************           )
                                             )       Takings claim arising from a denial by the
LOST TREE VILLAGE                            )       Corps of Engineers of a wetlands fill permit
CORPORATION,                                 )       sought under Section 404 of the Clean Water
                                             )       Act; remand by court of appeals to address
                      Plaintiff,             )       economic loss of value to relevant parcel;
                                             )       law-of-the-case doctrine; mandate rule;
       v.                                    )       Lucas analysis; Penn Central analysis; Rule
                                             )       54(b) judgment
UNITED STATES,                               )
                                             )
                      Defendant.             )
                                             )
**********************************

        Jerry Stouck, Greenberg Traurig, LLP, Washington, D.C., for plaintiff. With him on the
briefs was Danielle M. Diaz, Greenberg Traurig, LLP, Washington, D.C.

       Jacqueline Brown, Trial Attorney, Natural Resources Section, Environment & Natural
Resources Division, United States Department of Justice, Washington, D.C., for defendant.
With her on the briefs was Robert G. Dreher, Acting Assistant Attorney General, Environment &
Natural Resources Division, United States Department of Justice, Washington, D.C.

                                   OPINION AND ORDER

LETTOW, Judge.

        This remanded takings case focuses on a determination of the economic value of the
previously defined relevant parcel. Plaintiff, Lost Tree Village Corporation (“Lost Tree”) sought
a wetlands fill permit from the U.S. Army Corps of Engineers (“the Corps”) for a 4.99 acre tract
of land (“Plat 57”) bordering a cove on the Indian River in east central Florida. Lost Tree claims
that the denial of that permit eliminated all economically viable use of Plat 57 and constituted a
taking in contravention of the Takings Clause of the Fifth Amendment to the United States
Constitution. After a trial, the court previously ruled that the relevant parcel for the takings
analysis encompassed Plat 57 and a nearby tract, Plat 55, along with scattered wetlands still
owned by Lost Tree in a residential community known as John’s Island. See Lost Tree Village
Corp. v. United States, 100 Fed. Cl. 412, 430-35 (2011) (“Lost Tree I”), rev’d and remanded,
707 F.3d 1286 (Fed. Cir. 2013) (“Lost Tree II”). Based on that ruling, the court found that the
permit denial resulted in a non-compensable diminution in value of the relevant parcel and
directed judgment for the government. Lost Tree I, 100 Fed. Cl. at 439. On appeal, the Court of
Appeals for the Federal Circuit held that the relevant parcel for purposes of the takings analysis
                                                 1
consisted of Plat 57 alone, not also neighboring Plat 55 and the scattered wetlands owned by
Lost Tree. Lost Tree II, 707 F.3d at 1294. The court of appeals remanded for a “determin[ation
of] the loss in economic value to Plat 57 suffered by Lost Tree as a result of the Corps’ denial of
the . . . permit, and then appl[ication of] the appropriate framework to determine whether a
compensable taking occurred.” Id. at 1295. Specifically, the court of appeals indicated that “[i]n
determining the loss in value to Plat 57, the [trial] court may revisit the property values it
adopted in the course of determining the impact of the Plat 57 permit denial on Lost Tree under
its definition of the relevant parcel.” Id.

                                             FACTS

                                        A. John’s Island

        Lost Tree was a land-development enterprise that entered into an option agreement in
1968 (“1968 Option Agreement”) to purchase approximately 2,750 acres of property on the mid-
Atlantic coast of Florida in Indian River County. Lost Tree I, 100 Fed. Cl. at 415. Various
parcels of land were subject to the 1968 Option Agreement, including: (1) land on an unnamed
barrier island on the Atlantic Coast, which is bisected by U.S. Highway A-1-A, (2) a westerly
peninsula of the barrier island known as the “Island of John’s Island” bordering the Indian River,
(3) various other islands in the Indian River, including McCuller’s Point, Gem Island, Pine
Island, Sister Island, Hole-in-the-Wall Island, Fritz Island, and others, (4) submerged lands in
and around the Indian River, (5) a “North Acreage” consisting of approximately 100 acres on the
Indian River north of the barrier island, and (6) approximately 35 acres about five miles due west
of Gem Island, known as the “West Acreage.” Id.

        Lost Tree began exercising its options in 1969 and continued to acquire parcels in a
piecemeal fashion until 1974. Lost Tree I, 100 Fed. Cl. at 415. As part of its last acquisition,
Lost Tree purchased Gem Island and the Island of John’s Island, which included the land now
comprising Plat 57. Id. Although the 1968 Option Agreement included a provision calling for
an overarching land development plan, that provision was never enforced, and no master plan
has since been discovered. Id. at 415-16. Beginning in 1969, and continuing for a number of
years, Lost Tree developed on a seriatim basis, through the recording of approximately 56
distinct plats, roughly half of the property covered by the 1968 Option Agreement. Id. at 416.
Those plats, totaling approximately 1,300 acres, ultimately became the greater part of a gated
residential community known as “John’s Island.” Id. As the court previously noted, “Lost Tree,
however, never owned all of the property encompassed by the gated community, and most
knowledgeable people in the area would consider the community of John’s Island to be inclusive
of parcels which were neither covered by the 1968 Option Agreement nor ever owned by Lost
Tree.” Id. Lost Tree built the majority of the roads within the community and was responsible
for the development of the infrastructure for the community. Id.

        In August 1980, Lost Tree submitted to the Corps an application for a wetlands fill permit
under Section 404 of the Clean Water Act, 33 U.S.C. § 1344, and a comparable permit
application to the State of Florida’s Department of Environmental Regulation. Lost Tree I, 100
Fed. Cl. at 416. Attendant to the permit applications, Lost Tree submitted a “Development Plan”
for the Island of John’s Island and Gem Island (the “1980 Development Plan”). Id. The 1980



                                                2
Development Plan “propose[d] the creation of some 200 single family residences on about 400
acres of land.” Id. (internal citations omitted) (alteration in original). This development plan
included several drawings, including one in which a substantial portion of Plat 57 was shaded in
green and labeled as a wildlife preserve. Id. at 417. The 1980 Development Plan, however, was
effectively withdrawn when Lost Tree submitted a revised permit application in an effort to
appease Florida’s Department of Environmental Regulation. See id. The revised application
deleted “all originally proposed project features” except a bridge and its approaches. Id.
Accordingly, no distinct development plan for Plat 57 was ever recorded. Throughout the 1980s
and early 1990s, Lost Tree received several Section 404 permits to continue developing its
property. See id. at 417-18. In exchange, it recorded various conservation easements in favor of
the local, state, and federal governments. Id. at 418. The development of Stingaree Point, the
peninsula of the Island of John’s Island on which Plat 57 lies, began in November 1985. Id.
During development, a road was built and water and sewer service lines were stubbed out to
plats neighboring Plat 57, but not to Plat 57 itself. Id.

         In 1994, Lost Tree hired new management with the intention of shifting the business
from land development to commercial real estate. See Lost Tree I, 100 Fed. Cl. at 418. As part
of its new focus, Lost Tree sought to rid itself of residual land it owned in and near John’s Island,
land on which it continued to pay taxes but from which it received no revenue. See id. At this
point, the parties agree that Lost Tree had no plans to develop the land constituting Plat 57. Id. at
423-24. Plat 57 “contains a mangrove swamp and wetlands that have been disturbed by scattered
upland spoil mounds vegetated by an invasive species of pepper[] and by manmade ditches
installed for mosquito control.” Id. at 423 (internal citations omitted). 1 In early 2002, Lost Tree
learned that another developer had applied for a wetlands fill permit for a property south of Plat
57 and had proposed certain improvements to a mosquito control impoundment at McCuller’s
Point as mitigation for that permit. Id. at 424. Lost Tree owned half of McCuller’s Point, and as
the owner of adjacent land, it was asked to approve any mitigation on McCuller’s Point. Id.
Lost Tree withheld approval, seeking permitting credits in exchange for the improvements that
would be made. Id. To take advantage of these potential credits, Lost Tree sought the various
permits and approvals required to develop Plat 57, believing that of its remaining land holdings,
Plat 57 showed the most developmental promise. See id. at 424-25.

        In August 2002, Lost Tree submitted an application to the Town of Indian River Shores
requesting approval for the preliminary plat, among other things, and it submitted a permit
application to the Corps for a Section 404 permit. Lost Tree I, 100 Fed. Cl. at 424-25. The town
approved Lost Tree’s application, and Lost Tree obtained appropriate zoning and all other local
and state permits and approvals necessary to move forward with development. Id. at 425. In
August 2004, however, the Corps denied the Section 404 permit because “less environmentally
damaging alternatives were available to [Lost Tree] and the project purpose ha[d] already been
realized through the development of home-sites within the subdivision.” Id. (internal citations
omitted) (alterations in original). The Corps acknowledged that if an applicant other than Lost
Tree had sought the permit, it would have been granted. Id.

       1
         The pepper species, Schinus terebinthifolius, is an invasive shrub or small tree that is
native to Brazil and can irritate the skin in a manner akin to poison ivy. Lost Tree I, 100 Fed. Cl.
at 423 & n.19.


                                                 3
        The parties agree that without the permit, Plat 57 has a nominal value, not reflective of
any economic use, but with the permit, Plat 57 is worth a substantial amount. Lost Tree’s
appraisal expert, Mr. Peter Armfield, testified that it would be worth $25,000 without the permit
and $4,285,000 with the permit. See DX 134 (at ninth and tenth unnumbered pages). 2 The
government’s appraiser, Mr. John Underwood, testified that it would be worth $30,000 without
the permit, see DX 136 at 48, and $3,910,000 with the permit, id.; see also Lost Tree I, 100 Fed.
Cl. at 425-26.

                                     B. The Post-Trial Decision

        Defining the relevant parcel was the key issue for decision in this case. The government
sought to include all of the land acquired by Lost Tree pursuant to the 1968 Option Agreement,
while Lost Tree sought to limit the relevant parcel to Plat 57. Lost Tree I, 100 Fed. Cl. at 430.
Following a seven-day trial, this court determined that for purposes of a takings analysis,
whether under Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), or Penn Central
Transp. Co. v. City of New York, 438 U.S. 104 (1978), the relevant parcel included Plat 57, Plat
55 (a developed, nearby plat still owned by Lost Tree), and several scattered wetlands still
owned by Lost Tree within the community of John’s Island. Lost Tree I, 100 Fed. Cl. at 435,
437. Because of temporal considerations, the court excluded the properties that had been
previously developed and sold by Lost Tree some years previously. See id. at 433. The value of
Plat 55 was significant to the takings analysis, and the court determined that the permit denial for
Plat 57 diminished the value of the defined relevant parcel by approximately 58.4%. Id. at 437.
The court held that“[t]his degree of diminution plainly d[id] not constitute the type of total
economic wipeout that constitutes a categorical taking under Lucas.” Id. Accordingly, the court
proceeded by applying the Penn Central factors to determine whether the resulting partial
regulatory taking was compensable. Id. at 437-39.

        In applying the Penn Central factors, the court determined that the character of the
governmental action tended to favor Lost Tree because the Corps treated Lost Tree more
adversely than it would have treated another applicant, and the value of the wetlands had been
significantly reduced by prior mosquito-control actions. Lost Tree I, 100 Fed. Cl. at 438-39.
The court found that the investment-backed expectations factor was virtually in balance with no
weighting in favor of either side. Id. Lost Tree possessed very general expectations for the
Island of John’s Island and Gem Island when it purchased those tracts in making the last
acquisition under the 1968 Option Agreement and it had generated specific expectations for Plat
57 beginning in 2001 or 2002, but those expectations were subject to the existing regulatory
regime. Id. at 438. “Lost Tree’s expectations were not objectively unreasonable given the
adventitious projected development at McCuller’s Point by The Estuary [the entity proposing the
unrelated project that required mitigation], coupled with the facts that Lost Tree had property on
the Point that was readily available for wetland improvement, i.e., removal of a previously
installed mosquito control project, and the State supported the project.” Id. Ultimately, the court
found the economic impact factor to be dispositive. “A diminution in value of 58.4% due to the
regulatory action is insufficient to give rise to a taking despite the weight of the other Penn
Central factors.” Id. at 439.

       2
           The government’s trial exhibits are cited as “DX__.”


                                                  4
                                     C. The Appellate Decision

        Lost Tree appealed this court’s decision, and the Federal Circuit reversed and remanded.
Lost Tree II, 707 F.3d at 1288. The Federal Circuit held that the relevant parcel was Plat 57
alone. Id. at 1294. The court placed particular emphasis on the “‘economic expectations of the
claimant with regard to the property.’” Id. at 1293 (quoting Norman v. United States, 429 F.3d
1081, 1091 (Fed. Cir. 2005)). It explained that “even when contiguous land is purchased in a
single transaction, the relevant parcel may be a subset of the original purchase where the owner
develops distinct parcels at different times and treats the parcels as distinct economic units.” Id.
(internal citations omitted). The Federal Circuit concluded that Lost Tree had neither considered
nor prepared Plat 57 for developments in the same way it had prepared the other portions of the
John’s Island community. Id. Plat 55, for example, had water and sewer lines stubbed out to it
years prior to the events at issue, while Plat 57 did not. Id. at 1294. In so deciding, the court of
appeals affirmed this court’s factual findings, stating among other things that they “support the
conclusion that Lost Tree had distinct economic expectations for each of Plat 57, Plat 55, and its
scattered wetland holdings in the vicinity.” Id. On remand, the Federal Circuit directed this
court to

                 determine the loss in economic value to Plat 57 suffered by Lost
                 Tree as a result of the Corps’ denial of the [Section] 404 permit,
                 and then apply the appropriate framework to determine whether a
                 compensable taking occurred. In determining the loss in value to
                 Plat 57, the court may revisit the property values it adopted in the
                 course of determining the impact of the Plat 57 permit denial on
                 Lost Tree under its definition of the relevant parcel.

Lost Tree II, 707 F.3d at 1295.

         Following receipt of the mandate, this court requested that the parties indicate whether
they were prepared to adduce additional evidence regarding valuation. Order of July 22, 2013,
ECF No. 139. Lost Tree declined to submit any additional evidence, asserting that the existing
trial record contains sufficient evidence regarding Plat 57’s fair market value with and without a
permit. Joint Status Report at 1-2 (Aug. 26, 2013), ECF No. 142. The government, on the other
hand, suggested that additional evidence would be helpful to flesh out a new valuation theory,
taking into account a prospective buyer’s uncertainty about whether a Section 404 permit would
be granted. Id. at 5-6. After addressing whether it was either timely or appropriate for the
government to pursue a new valuation theory in place of the approach it had taken at trial, Hr’g
Tr. 12:3 to 13:22 (Sept. 10, 2013), 3 the court permitted the government to provide an evidentiary
proffer explaining its proposed new evidentiary approach. Hr’g Tr. 21:4-8. Thereafter, Lost
Tree submitted a Motion for Judgment on the Record, Pl.’s Mot. for Judgment on the Record
(“Pl.’s Mot”), ECF No. 145, and the government filed a Cross-Motion for Judgment on the
Record, Def.’s Cross-Mot. for Judgment on the Record (“Def.’s Cross-Mot.”), ECF No. 146. A
proffer accompanied the government’s cross-motion. See Def.’s Cross-Mot. Ex. A (Unsworn

       3
           Subsequent citations to the hearing conducted on September 10, 2013, will omit the date.


                                                   5
Decl. of John R. Underwood, Jr. (Nov. 19, 2013)) (“Unsworn Underwood Decl.”), ECF No. 146-
1. Briefing was completed on January 17, 2014, and a hearing was held on January 23, 2014.
The case is ready for disposition.

                                 STANDARDS FOR DECISION

        In deciding this case on remand, the court is bound by the mandate from the Federal
Circuit and by its own prior findings in this case that are consistent with the Circuit’s decision
and mandate. In that connection, “[t]he law-of-the-case doctrine ‘posits that when a court
decides upon a rule of law, that decision should continue to govern the same issues in subsequent
stages in the same case.’” Banks v. United States, 741 F.3d 1268, 1276 (Fed. Cir. 2014) (quoting
Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 815-16 (1988)). The doctrine rests
upon the important public policy that “[n]o litigant deserves an opportunity to go over the same
ground twice, hoping that the passage of time or changes in the composition of the court will
provide a more favorable result the second time.” Gindes v. United States, 740 F.2d 947, 949
(Fed. Cir. 1984) (internal citation and quotation omitted) (alteration in original). The mandate
rule “dictates that ‘an inferior court has no power or authority to deviate from the mandate issued
by an appellate court.’” Banks, 741 F.3d at 1276 (quoting Briggs v. Pennsylvania R.R., 334 U.S.
304, 306 (1948)). This rule applies “to issues ‘actually decided, either explicitly or by necessary
implication’” by the appellate court. Id. (quoting Toro Co. v. White Consol. Indus., Inc., 383
F.3d 1326, 1335 (Fed. Cir. 2004)). Three exceptions can, if applicable, cause the law-of-the-case
doctrine and the more specific mandate rule to be overcome. These exceptions appertain when:
“(1) subsequent evidence presented at trial was substantially different from the original evidence;
(2) controlling authority has since made a contrary and applicable decision of the law; or (3) the
decision was clearly erroneous ‘and would work a manifest injustice.’” Id. (quoting Gindes, 740
F.2d at 950).

        In its mandate in this case, as previously noted, the Federal Circuit required this court to
“determine the loss in economic value to Plat 57 suffered by Lost Tree as a result of the Corps’
denial of the [Section] 404 permit.” Lost Tree II, 707 F.3d at 1295. Specifically, the court of
appeals indicated that “the court may revisit the property values it adopted in the course of
determining the impact of the Plat 57 permit denial.” Id. (emphasis added).

        Lost Tree contends that in these proceedings on remand, the court should focus on the
property values, noting that except for this court’s conclusion respecting the relevant parcel, all
other findings and conclusions made in the post-trial decision were accepted and adopted by the
court of appeals. See Pl.’s Mot. at 9-12; see also Pl.’s Reply in Support of Mot. for Judgment
(“Pl.’s Reply”) at 2-3, ECF No. 149. The government, on the other hand, urges the court fully to
reopen the record, reconsider all of the takings factors, and render judgment in its favor. See
Def.’s Reply in Support of its Cross-Motion for Judgment (“Def.’s Reply”) at 2-5, 16, ECF No.
150. Both parties appear to agree that the court has discretion to reopen the record insofar as the
valuation of Plat 57 is concerned. See Pl.’s Mot. at 10 (citing Zenith Radio Corp. v. Hazeltine
Research, Inc., 401 U.S. 321 (1971), and Enzo Biochem, Inc. v. Calgene, Inc., 188 F.3d 1362,




                                                  6
1379-80 (Fed. Cir. 1999)); Def.’s Reply at 6 (citing Enzo Biochem, 188 F.3d at 1379-80, and
State Indus., Inc. v. Mor-Flo Indus. Inc., 948 F.2d 1573, 1577 (Fed. Cir. 1991)). 4

        The parties’ dispute about the scope of the court’s ability to reopen the record centers on
those factual findings that were made in Lost Tree I, reviewed and accepted by the court of
appeals in Lost Tree II, and formed a basis for the Circuit’s decision to overturn only this court’s
determination regarding the relevant parcel and remand for a determination of economic loss
respecting Plat 57. Ordinarily, those questions that were considered by the appellate court and
accepted, or not disturbed, in connection with the appellate court’s decision may not be
reconsidered absent applicability of one of the exceptions to the mandate rule. Banks, 741 F.3d
at 1276 (citing In Re Sanford Fork & Tool Co., 160 U.S. 247, 255 (1895)); see also Banks, 741
F.3d at 1278 (“Banks II did not ‘leave open’ the issue of when [p]laintiffs’ claims accrued. The
Banks II court held that the complaints were not barred by the six-year statute of limitations.
Necessary and predicate to the holding was a finding that the mitigation efforts delayed claim
accrual.”). In those areas covered by the remand, however, the question of whether the record
should be reopened turns on the extent to which the existing record was sufficiently developed to
permit the necessary specific findings to be made upon remand. See Purex Corp. v. Procter &
Gamble Co., 664 F.2d 1105, 1109 (9th Cir. 1981).

                                    TAKINGS PRINCIPLES

        The Fifth Amendment to the United States Constitution provides that private property
shall not “be taken for public use, without just compensation.” U.S. Const. amend. V. Takings
cases generally fall into one of two categories – those accomplished by a physical invasion of the
property contrasted to those that arise as a result of a regulatory imposition. See Palazzolo v.
Rhode Island, 533 U.S. 606, 617 (2001); see also Lucas, 505 U.S. at 1014-15; Bass Enters. Prod.
Co. v. United States, 381 F.3d 1360, 1365 (Fed. Cir. 2004). Where the government takes
physical possession of private property, it must compensate the owner. Tahoe-Sierra Pres.
Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302, 322 (2002); Bass Enters., 381 F.3d
at 1365 (internal citations omitted). When the government regulates the permissible use of a

       4
         In their briefing, both parties cite and quote extensively from the Federal Circuit’s
decision in Confederated Tribes of the Warm Springs Reservation of Oregon v. United States,
101 Fed. Appx. 818 (Fed. Cir. 2004). Relying on that decision as a precedent is contrary to
Federal Circuit Rule 32.1(c)-(d), which in effect bars reliance on nonprecedential dispositions
issued by the Federal Circuit or its predecessor before January 1, 2007, except where necessary
for claim preclusion, etc. Compare Rates Tech., Inc. v. Mediatrix Telecom, Inc., 688 F.3d 742,
750-51 (Fed. Cir. 2012) (admonishing appellant for citing as precedent a case affirmed via
Federal Circuit Rule 36 because it was a nonprecedential decision issued in 2000), and Nash v.
United States Postal Service, 345 Fed. Appx. 560, 561 (Fed. Cir. 2009) (declaring that a
nonprecedential decision issued before 2007 was “not citable” pursuant to Federal Circuit Rule
32.1(c)), with Beres v. United States, 104 Fed. Cl. 408, 454 n.42 (2012) (noting that Federal
Circuit Rule 32.1 “makes no provision regarding the citation of nonprecedential dispositions
issued before [2007]”), and Distributed Solutions, Inc. v. United States, 104 Fed. Cl. 368, 386
n.26 (2012) (citing an unpublished case from the Federal Circuit issued prior to 2007 as
nonprecedential pursuant to Federal Circuit Rule 32.1(d)).


                                                 7
property, however, any resultant loss in value is not necessarily compensable. See Tahoe-Sierra,
535 U.S. at 322-24.

        A categorical duty to provide compensation to the owner who has suffered a regulatory
taking arises only in the “extraordinary circumstance” where “no productive or economically
beneficial use of land is permitted.” Lucas, 505 U.S. at 1017 (emphasis in original); see also
Tahoe-Sierra, 535 U.S. at 330. “A property owner must suffer a literal total loss in value to
trigger liability on the part of the government for a categorical taking.” Lost Tree I, 100 Fed. Cl
at 427 (citing Lucas, 505 U.S. at 1019 n.8, and Tahoe-Sierra, 535 U.S. at 330). On the other
hand, if the regulation “fall[s] short of eliminating all economically beneficial use, a taking
nonetheless may have occurred,” Palazzolo, 533 U.S. at 617, and the court looks to three factors
to guide its inquiry: (1) “[t]he economic impact of the regulation on the claimant,” (2) “the extent
to which the regulation has interfered with distinct investment-backed expectations,” and (3) “the
character of the governmental action,” Penn Cent., 438 U.S. at 124. While these factors provide
“important guideposts,” “[t]he Takings Clause requires careful examination and weighing of all
the relevant circumstances.” Palazzolo, 533 U.S. at 634, 636 (O’Connor, J., concurring); see
also Tahoe-Sierra, 535 U.S. at 321 (whether a taking has occurred “depends upon the particular
circumstances of the case”); Yee v. City of Escondido, 503 U.S. 519, 523 (1992) (regulatory
takings claims “entail[] complex factual assessments”).

                                           ANALYSIS

       In its decision, the court of appeals left open whether the criteria of Lucas or Penn
Central should be applied, dependent upon the evidentiary record respecting economic loss. See
Lost Tree II, 707 F.3d at 1295. Because the relevant parcel has been redefined, the court must
reevaluate the economic loss of the permit denial with Plat 57 alone as the relevant parcel, and
then determine whether a compensable taking occurred.

                                             A. Lucas

       While per se rules are disfavored in takings law, a subset of regulatory takings are
categorically compensable “when the owner of real property has been called upon to sacrifice all
economically beneficial uses in the name of the common good, that is, to leave his property
economically idle.” Lucas, 505 U.S. at 1015. A total loss of economically beneficial use is
required. See Tahoe-Sierra, 535 U.S. at 330 (affirming that a diminution in value of 95% would
not constitute a categorically compensable taking) (citing Lucas, 505 U.S. at 1019 n.8).

        In this instance, the inquiry is whether Plat 57 retains any economically beneficial use
without a Section 404 permit. Both parties submitted appraisals for Plat 57. The government’s
appraiser, Mr. Underwood, testified that Plat 57 was worth $30,000 without the permit. Lost
Tree I, 100 Fed. Cl. at 426. Lost Tree’s expert, Mr. Armfield, valued the plat similarly at
$25,000. Id. at 425-26. Mr. Armfield concluded that without the permit the property is
“relegated to basically a wetland parcel with little or no economic use except at nominal levels
that may be related to nuisance value or environmental use which typically does not support
significant economic value except in support of mitigation activities in development of other
lands.” DX 134 (at tenth unnumbered page). Mr. Underwood testified that the highest and best



                                                 8
use of Plat 57 without a permit was as “passive recreation,” which he described as “a place that
human beings can go for relaxation, they can go to enjoy nature.” Tr. 1008:10-17. 5 Due to the
minimal difference between the parties’ estimates and general agreement on Plat 57’s highest
and best use without a permit, the court will simply take the average of the parties’ estimates.
Thus, the court finds that the value of Plat 57 without a permit is $27,500.

        The parties agree that the highest and best use of Plat 57, had a fill permit been issued,
would be for a single family home, the use for which it is zoned. See DX 136 at 2; DX 134 (at
ninth unnumbered page). Mr. Underwood engaged in a multi-step process to arrive at a
valuation for Plat 57 with a permit. DX 136 at 45. Based on a sales-comparison approach, he
concluded that Plat 57, if developed, would sell for approximately $1,875,000 per upland acre,
for a rounded total of $4,720,000. Id. 6 Because Plat 57 was not yet developed, Mr. Underwood
applied a number of deductions. Id. at 46. The chief deduction was the cost of construction
work on the mitigation area at McCuller’s Point and the different type of work necessary to
prepare Plat 57 as a home site. Id. at 45. He considered the construction cost estimate prepared
by Mr. Melchiori of On-Site Management Group of $489,612. Id.; see also DX 134 (at 15th
unnumbered page) (Melchiori’s John’s Island Plat 57 Construction Estimate). That estimate
encompassed the actual construction work needed for the distant mitigation area, the preparatory
work on Plat 57, and miscellaneous surveying, engineering, legal, and other incidental fees. See
DX 134 (at 15th unnumbered page). Mr. Melchiori’s estimate also included a 10% contingency
allowance for each category of these costs. Id. Mr. Underwood additionally took into account a
review of Mr. Melchiori’s estimate by James M. Hudgens of CZR Incorporated, which yielded
an estimate of $501,712. DX 136 at 45. Mr. Underwood ultimately concluded that construction
costs should be estimated at $500,000. Id. He made further deductions based on an
“environmental risk” 7 and an “underestimation risk,” for a combined deduction value of 15% of
the construction cost, i.e., an additional $75,000 in deductions. Id. In addition, Mr. Underwood
specified a cost associated with a developer “assuming the time and risk of undertaking the entire
project,” which he referred to as “entrepreneurial incentive” and quantified at 5% of the plat’s
value as developed. Id. at 46. He lowered it from a typical 10% or 15% because Lost Tree had
obtained all the other required permits for the development. Id. Thus, Mr. Underwood deducted
$575,000 (construction costs and “risk” deductions) and $236,000 (entrepreneurial incentive)
from $4,720,000 (estimated value of Plat 57 as developed) to reach a valuation for Plat 57 of
$3,910,000. Id.

       The plaintiff’s expert, Mr. Armfield, also used a land sales comparison approach, but
concluded that Plat 57 as developed would have an estimated market value of $4,800,000. DX

       5
           Citations to the transcript of the trial are to “Tr.__.”
       6
       Mr. Underwood considered that 2.5183 upland acres would be present at Plat 57 as
developed. DX 136 at 45.
       7
         Mr. Underwood defined environmental risk in terms of the work to be accomplished at
the distant mitigation area, specifically the “risk . . . that environmental conditions could damage
the wetlands and affect the validity of the mitigation plan and cause the five year monitoring plan
to restart and necessitate cures from moderate to replanting the entire wetland.” DX 136 at 45.


                                                      9
134 (at ninth unnumbered page). Similarly to Mr. Underwood, Mr. Armfield provided a series
of deductions to account for construction costs and development risks. Id. Mr. Armfield relied
solely on Mr. Melchiori’s construction estimate of $489,612 for development costs. Id. Mr.
Armfield deducted an additional $25,000 to account for an “incentive for a buyer to accept the
risk and work associated with seeing the job to completion.” Id. Overall, Mr. Armfield
concluded that Plat 57, as permitted but not developed, would have an estimated market value of
$4,285,388. Id.

        Until their most recent briefs, both parties operated under the assumption that the
appropriate economic measures were the value of Plat 57 with a permit and the value of Plat 57
without a permit. The government now attempts to displace its expert’s trial testimony to this
effect in favor of a new theory for valuing the economic impact of the permit denial. See Def.’s
Cross-Mot. at 17. On remand, the government contends that the appropriate measures are (1) the
value of Plat 57 the moment before the Section 404 permit was denied, thus encompassing the
uncertainty of whether a permit would be granted, and (2) the value of Plat 57 without a permit.
Id. at 16-19. Such an argument necessarily would require reopening the evidentiary record to
accept new evidence regarding the new proposed value of Plat 57 the moment before the permit
was denied. Lost Tree opposed introduction of the new valuation theory on the grounds that: (1)
the existing evidence was more than adequate for valuation purposes, (2) the government should
not be allowed to change theories on remand, and (3) the government’s new theory was
conceptually invalid. Pl.’s Mot. at 7-12. The court permitted the government to file an
evidentiary proffer to “address[] [its] theory and explain why the proffer should be accepted.”
Hr’g Tr. 21:4-8.

        The proponent of an evidentiary proffer must “express[] precisely the substance of the
excluded evidence to inform both the trial court and the appellate court why exclusion of the
evidence” might be prejudicial error. Polack v. Commissioner, 366 F.3d 608, 612 (8th Cir.
2004) (internal citation and quotation omitted) (alteration in original). The materials submitted
by the government, namely, its cross-motion and the accompanying unsworn declaration by Mr.
Underwood, do not provide enough specificity to constitute an evidentiary proffer and fail to
persuade the court to reopen the record.

         Mr. Underwood’s one-page narrative declaration is limited to setting forth the types of
materials he would need to consider to value Plat 57 under the “new hypothetical condition” that
a permit had been applied for but that no decision had yet been made by the Corps. Unsworn
Underwood Decl. Mr. Underwood neither undertook any actual analysis nor did he provide the
court with specific numbers obtained through application of this new valuation theory.
Additionally, he did not state with certainty that numbers could be ascertained from sources
available to appraisers. See id. These types of deficiencies have led courts to find similar
proffers inadequate for purpose of appellate review of evidentiary rulings pursuant to Fed. R.
Evid. 103. See, e.g., Inselman v. S & J Operating Co., 44 F.3d 894, 896 (10th Cir. 1995)
(rejecting offer of proof because plaintiffs failed to examine witness and establish that he would
testify as they believed); Gates v. United States, 707 F.2d 1141, 1145 (10th Cir. 1983) (affirming
that merely telling the court the content of a witness’s proposed testimony is not an offer of
proof); see also Perkins v. Silver Mountain Sports Club and Spa, LLC, 557 F.3d 1141, 1147
(10th Cir. 2009) (evidentiary proffer requires more than “merely telling the court of the content



                                               10
of . . . proposed testimony” (internal quotations and citations omitted)); cf., Fox v. Dannenberg,
906 F.2d 1253, 1255, 1257 (8th Cir. 1990) (accepting a proffer where counsel stated with
specificity the anticipated testimony of the excluded expert even though counsel did not put the
proffered witness on the stand). Rule 103(a)(2) requires a party to preserve a claim of error
resulting from an evidentiary ruling excluding evidence by “inform[ing] the court of its
substance by an offer of proof, unless the substance was apparent from the context.” Fed. R.
Evid. 103(a)(2). If a party does not submit an adequate offer of proof, a reviewing court may
only take notice of a “plain error affecting a substantial right,” a more stringent level of review.
Fed. R. Evid. 103(e).

        In this instance, the proffer submitted by the government does not provide the court with
enough substantive detail to determine the probative value of the evidence. Nor has the
government provided any explanation for its failure to pursue its new theory earlier. Both parties
previously submitted evidence regarding the proper valuation of Plat 57, and the government has
failed to demonstrate why the court should displace its expert’s prior testimony with a second
valuation of Plat 57 performed in a quite different way.

         Even if the court were to find the government’s proffer to be adequate, the proposed
alternative valuation method has no merit. The government may not lower the fair market value
of Plat 57 by relying on the possibility of the very taking at issue. Prior attempts by the
government to make this argument have been rejected by the Federal Circuit and this court’s
predecessor. Specifically, in Loveladies Harbor, Inc. v. United States, 21 Cl. Ct. 153, 156 & 156
n.5 (1990), aff’d, 28 F.3d 1171 (Fed. Cir. 1994), the plaintiffs asserted that the highest and best
use for the disputed property was as a prepared site for a 40-lot residential development and
submitted an appraisal assuming such development. The government attacked the plaintiff’s
appraisal as “inadequate because it d[id] not account for a possibility that all permits would not
be obtained, a factor by which a knowledgeable buyer would discount his purchase price.” Id. at
156. In response to the government’s argument that the plaintiffs lacked the “very permit
approval by the Army Corps of Engineers that is at issue in this case,” id. (emphasis in original),
the trial court recalled a similar argument made before the Federal Circuit in Florida Rock
Indus., Inc. v. United States, 791 F.2d 893, 905 (1986), stating, “This argument is reminiscent of
defendant/appellant's argument in Florida Rock[,] to which the Federal Circuit responded, ‘We
suppose appellant added this contention to provide a little humor for an otherwise serious and
scholarly brief, and say no more about it.’ 791 F.2d at 905. Neither shall this court,” Loveladies
Harbor, 21 Cl. Ct. at 156 n.5.

        Valuing Plat 57 in accord with its fair market value at its “highest and best use,” 8
meaning with a Section 404 permit or absent the regulatory scheme entirely, is consistent with
prior precedent. See, e.g., Brace, 72 Fed. Cl. at 350 (citing Olson v. United States, 292 U.S. 246,
255 (1934)), aff’d, 250 Fed. Appx. 359 (Fed. Cir. 2007); Walcek v. United States, 49 Fed. Cl.

       8
         Highest and best use has been defined as “‘[t]he reasonably probable and legal use of
[property], which is physically possible, appropriately supported, financially feasible, and that
results in the highest value.’” Brace v. United States, 72 Fed. Cl. 337, 350 (2006) (quoting
Loveladies Harbor, 21 Cl. Ct. at 156) (alterations in original)), aff’d, 250 Fed. Appx. 359 (Fed.
Cir. 2007).


                                                 11
248, 261-265 (2001) (“[T]he denominator of the economic value fraction must be the value of
the entire [p]roperty, unencumbered by wetlands regulations.”), aff’d, 303 F.3d 1349 (Fed. Cir.
2002); Loveladies Harbor, 21 Cl. Ct. at 157. This is especially true in this case because, except
for the Section 404 permit denial, Plat 57 feasibly could have been put to its highest and best use
and it had obtained all of the other necessary permits and approvals.

        Accordingly, the court will determine the economic impact of the permit denial according
to the evidence previously submitted by both parties at trial, which presumed the relevant
economic pinpoints were Plat 57 without a permit compared to Plat 57 with a permit and put to
its highest and best use as a single family lot. The parties’ experts’ opinions are relatively close
in value. Mr. Underwood estimated the fair market value of Plat 57 as developed would be
$4,720,000, while Mr. Armfield estimated it as $4,800,000. The values are very close and the
court sees no reason to favor one over the other, so it will split the difference. Thus, the court
finds that the value of the Plat 57 as developed is $4,760,000.

        The next step is evaluating the proper deductions for construction costs to find the value
of Plat 57 as permitted, but not developed. The court finds that Mr. Melchiori’s construction
estimate of $489,612.07 is reliable. Because this estimate already includes a 10% contingency
allowance for all costs, including mitigation area construction and lot preparation, the court will
not also apply Mr. Underwood’s additional deduction of 15% of the construction costs to
account for an “environmental risk” or an “underestimation risk.” Both experts applied a
deduction to account for a cost associated with convincing an owner or entrepreneur proceeding
with the project to accept the risk of development. Mr. Underwood calculates this risk as
approximately 5% of the value of the plat as developed, i.e., $236,000. DX 136 at 46. Mr.
Armfield calculates this as approximately 5% of the costs of construction, i.e., $25,000. DX 134
(at ninth unnumbered page). The court has already noted that Mr. Underwood’s entrepreneurial
incentive of $236,000 is excessive, see Lost Tree I, 100 Fed. Cl. at 437 n.33, and finds that Mr.
Armfield’s “entrepreneurial incentive” based on the estimated cost of construction is a more
appropriate deduction. Consequently, the court finds that the fair market value of Plat 57 as
permitted is $4,245,387.93.

        In conclusion, the court finds that the diminution of value, from $4,245,387.93 (value of
Plat 57 as permitted and ready for preparation for use as a site for a home) to $27,500 (nominal
value of Plat 57 without permit), is $4,217,887.93, or approximately 99.4%. Such a diminution
of value constitutes a categorical taking under Lucas, particularly because the assigned valuation
without a permit is a nominal amount that does not reflect any economic use. 9

                                    B. Penn Central Factors

        For completeness, the court will also apply its findings of fact to the Penn Central
framework. No need exists for the court to reconsider its prior findings regarding the first two
factors, viz., the character of the governmental action and investment-backed expectations. The

       9
        Plat 57 does have some environmental value as a wetland, but that value has been
reduced by the mosquito abatement measures undertaken decades previously, which left isolated
hummocks and some stagnant eutrophic pools.


                                                12
government has failed to demonstrate why it should be permitted to reargue these factors on
remand. The law-of-the-case doctrine supports the court’s decision not to reopen these findings.
None of the three generally accepted exceptions apply here – no new evidence has been
presented and accepted by the court; no controlling authority has rendered a contrary and
applicable decision of law; and the prior decision was not clearly erroneous. See Gindes, 740
F.2d at 950. Indeed, the court of appeals examined and approved this court’s prior findings
regarding these factors. See, e.g., Lost Tree II, 707 F.3d at 1294 (“The trial court’s factual
findings support the conclusion that Lost Tree had distinct economic expectations for each of
Plat 57, Plat 55, and its scattered wetland holdings in the vicinity.”). For context, the court will
briefly describe its prior findings on the first two Penn Central factors before reanalyzing the
economic impact factor in light of its findings on remand.

       1. Character of the governmental action.

        “The character of the governmental action factor requires a court to consider the purpose
and importance of the public interest underlying a regulatory imposition.” Lost Tree I, 100 Fed.
Cl. at 438 (quoting Maritrans Inc. v. United States, 342 F.3d 1344, 1356 (Fed. Cir. 2003)). The
Clean Water Act has a governmental objective of preserving the nation’s waterways and
wetlands. Lost Tree I, 100 Fed. Cl. at 438. In this case, however, the court was persuaded that
the Corps singled out Lost Tree for adverse treatment. Testimony at trial demonstrated that had
a different applicant requested a permit, the Corps would have responded favorably to the
application. Moreover, the court doubted the Corps’ contention that Plat 57 was a “high-quality”
wetland due to “the trenching and mounding that had occurred on Plat 57 for mosquito-control
purposes . . . and also the Town’s and state court’s findings that the wetlands involved were
marginal.” Id. at 439 (internal citations omitted). In sum, the court found that this factor weighs
in favor of Lost Tree. Id.

       2. Reasonable investment-backed expectations.

        The regulatory regime in place at the time property is acquired is relevant to the
determination of reasonable investment-backed expectations, but the existence of a regulatory
regime does not preclude a reasonable expectation that a permit could be obtained. See Lost
Tree I, 100 Fed. Cl. at 437-38 (citing Palazzolo, 533 U.S. at 633). In its prior decision, the court
found that Lost Tree had developed overarching, unspecific development expectations when it
acquired Gem Island and the Island of John’s Island, including the portion that eventually
became Plat 57, and that by 2001 or 2002, Lost Tree had developed investment-backed
expectations specifically for Plat 57, but that those expectations were subject to the regulatory
climate at the pertinent times. Id. at 416, 438. The court also concluded that Lost Tree’s
expectations were not unreasonable, given that “the adventitious projected development at
McCuller’s Point” was going to provide development credits and that it had obtained all other
required local permits and approvals. Id. at 438. This factor does not weigh in either party’s
favor. Id. at 439. 10

       10
        The government extensively argued in its cross-motion that Lost Tree did not have
reasonable investment-backed expectations for Plat 57 because it did not develop a distinct
development plan for that tract until around 2002. See Def.’s Cross-Mot. at 19-25. The


                                                 13
       3. Economic Impact.

        “When considering Penn Central’s economic impact factor, a court must ‘compare the
value that has been taken from the property with the value that remains in the property.’”
Maritrans, 342 F.3d at 1358 (quoting Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S.
470, 497 (1987)). As the court has previously described, a diminution in value of 99.4%
resulted from the Corps’ action, and that degree of diminution weighs very strongly in Lost
Tree’s favor under the Penn Central factors.

                                            C. Synopsis

        In accord with the Federal Circuit’s mandate, the court has revisited the economic value
of Plat 57 to determine whether a compensable taking occurred. In that connection, both Lost
Tree and the government were invited to adduce new evidence of valuation. Lost Tree rested on
the record established at the trial, while the government sought to displace its valuation evidence
admitted at trial in favor of a factually inadequate evidentiary proffer that also rested on an
inappropriate theory. The record evidence shows the potential fair market value of Plat 57 with a
Section 404 permit, reflecting its highest and best use, as well as its current fair market value
without a permit. The fair market value of Plat 57 with a permit would be $4,245,387.93, and its
current fair market value without a permit is $27,500. The resulting 99.4% diminution in value
effected a compensable categorical taking under Lucas. An analysis under the Penn Central
framework leads to the same result, i.e., that a compensable taking occurred.

                                            D. Interest

        “‘If the [g]overnment pays the owner before or at the time the property is taken, no
interest is due on the award[,] . . . [b]ut if disbursement of the award is delayed, the owner is
entitled to interest thereon.’” Arkansas Game and Fish Comm’n v. United States, 87 Fed. Cl.
594, 646 (2009) (quoting Kirby Forest Indus., Inc. v. United States, 467 U.S. 1, 10 (1984)), aff’d
after remand from the Supreme Court, 736 F.3d 1364 (Fed. Cir. 2013). The interest awarded
should be “sufficient to ensure that [the owner] is placed in as good a position pecuniarily as he
would have occupied if the payment had coincided with the appropriation.” Kirby Forest Indus.,
467 U.S. at 10 (citing Phelps v. United States, 274 U.S. 341, 344 (1927) and Seaboard Air Line
Ry. v. United States, 261 U.S. 299, 306 (1923)). “The interest awarded by the court ought to
emulate ‘what a reasonably prudent person’ would have received had he or she invested the
funds to produce a reasonable return while maintaining safety of principal.” National Food &
Beverage Co. v. United States, 105 Fed. Cl. 679, 704 (2012) (internal citations omitted). In this



government asserts that an investment-backed expectation must exist at the time of purchase, and
Lost Tree could not have had a reasonable investment-backed expectation at that time because
the effects of the Clean Water Act were well-known to all. Id. at 20-23. This argument has no
merit. It reiterates points raised without success in connection with the original trial, ignores the
effect of the adventitious development at McCuller’s Point, and fails to take account of the
Federal Circuit’s explicit approval of this court’s findings on the subject.


                                                 14
respect, the court regards the ten-year Treasury STRIPS rate as appropriate. See id. 11 STRIPS
reflect minimal risk because they are government-based securities and ten years is a reasonable
approximation of the duration between the taking, which occurred in August 2004, and the date
of judgment. STRIPS are “zero coupon” securities, and thus compounding is built into this
financial instrument. See id.

                                         CONCLUSION

        For the stated reasons, the court finds that the Corps’ denial of the Section 404 permit
application for Plat 57 has effected a taking of Lost Tree Village Corporation’s property. The
court awards Lost Tree $4,217,887.93, as measured by the fair market value of Plat 57 with a
Section 404 permit minus the nominal value of Plat 57 without a permit. The court awards
interest on that amount at the ten-year Treasury STRIPS rate from August 2004 to the date the
judgment is actually paid.

       Final judgment to this effect shall be entered under Rule 54(b) of the Rules of the Court
of Federal Claims because there is no just reason for delay. The clerk shall issue judgment in
accord with this disposition.

       After all proceedings respecting this judgment have been completed, the court will
address attorneys’ fees and expenses under Section 304(c) of the Uniform Relocation Assistance
and Real Property Acquisition Act, 42 U.S.C. § 4654(c).

       It is so ORDERED.

                                                  s/ Charles F. Lettow
                                                  Charles F. Lettow
                                                  Judge




       11
         The acronym STRIPS stands for “Separate Trading of Registered Interest and Principal
of Securities.” See STRIPS, Treasury Direct,
https://www.treasurydirect.gov/instit/marketables/strips/strips.htm (last visited Mar. 14, 2014).


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