Hearts Bluff Game Ranch, Inc. v. United States

• Citation: 73 ERC 2025,669 F.3d 1326
• Decision Date: 19 January 2012
• Docket Number: No. 2010–5164.,2010–5164.
• Parties: HEARTS BLUFF GAME RANCH, INC., Plaintiff–Appellant, v. UNITED STATES, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

669 F.3d 1326

73 ERC 2025

HEARTS BLUFF GAME RANCH, INC., Plaintiff–Appellant,

v.UNITED STATES, Defendant–Appellee.

No. 2010–5164.

United States Court of Appeals, Federal Circuit.

Jan. 19, 2012.

Terry L. Jacobson, Jacobson Law Firm, P.C., of Corsicana, Texas, argued for plaintiff-appellant. With him on the brief was Steven Gregory White, Naman, Howell, Smith & Lee, PLLC, of Waco, Texas.

Tamara N. Rountree, Attorney, Environment & Natural Resources Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Ignacia S. Moreno, Assistant Attorney General, Frank J. Singer and Kathryn E. Kovacs, Attorneys.

Before NEWMAN, LOURIE, and LINN, Circuit Judges.

LOURIE, Circuit Judge.

Hearts Bluff Game Ranch, Inc. (“Hearts Bluff”) appeals from the decision of the United States Court of Federal Claims (the “Claims Court”) dismissing its claim for just compensation under the Fifth Amendment for an alleged taking based on the Army Corps of Engineers' (the “Corps”) denial of Hearts Bluff's proposal to operate a mitigation bank on its property. Hearts Bluff Game Ranch, Inc. v. United States, No. 09–498L (Ct. Cl. June 11, 2010) (the “Order”). Because Hearts Bluff did not have a cognizable property interest in obtaining a mitigation banking instrument, we affirm.

Background

Hearts Bluff purchased approximately 4,000 acres of land in Titus County, Texas, for use as a mitigation bank. Id. at 3. A mitigation bank is an offset of preserved and restored wetlands used to compensate for the environmental impact of more destructive land use. See Final Guidance for the Establishment, Use and Operation of Mitigation Banks, 60 Fed.Reg. 58605, 58607 (Nov. 28, 1995). Mitigation banking allows landowners who would develop areas protected by pollution-control laws to do so notwithstanding those laws if they protect or improve similar areas in other parts of the country. Landowners can apply for mitigation banking instruments to participate in the program, and then can sell credits under the instrument to developers to offset environmentally destructive projects covered by section 404 permits under the Clean Water Act. See 33 U.S.C. § 1344. The Corps is in charge of the mitigation banking program and it has issued regulations to establish procedures for granting instruments for mitigation banks. One of the requirements of that mitigation bank program is that property held in the mitigation bank must be capable of being held in perpetuity.

Hearts Bluff contacted the Corps prior to purchasing its land, seeking assurances that the land would be suitable for mitigation banking. Order, at 3. At the time, the Marvin Nichols Reservoir had been proposed for the region where the 4,000 acres were located, but the Corps communicated that it then saw no impediments to creating the mitigation bank. Id. But in 2004, the Corps gave public notice of Hearts Bluff's application, following which the Texas Water Development Board announced that the Reservoir would become less viable (if not infeasible) if the mitigation bank were approved. Id. After the 2004 notice, the water plan for the Marvin Nichols Reservoir was elevated from a potential site to “unique value” status, and the Corps learned that the Reservoir was to be adopted in the 2007 State Water Plan with a recommendation that it be constructed. Id. at 3–4. The Corps then denied Hearts Bluff's application in July 2006 because the mitigation bank overlapped with the proposed Reservoir and it concluded that Hearts Bluff's land might not exist in perpetuity. Id.

Hearts Bluff sought reconsideration of the July 2006 ruling, which the Corps denied in July 2008. Id. Hearts Bluff then brought suit in state court, alleging, in part, a Fifth Amendment takings claim against the United States government. That suit was later removed to the U.S. District Court for the Western District of Texas. The takings claim was then subsequently transferred to the Claims Court for trial under the Tucker Act, 28 U.S.C. § 1491(a)(1). Hearts Bluff asserted that the government, acting through the Corps, took its property when the Corps denied it the necessary permit to create a mitigation bank.

The Claims Court dismissed the complaint for failure to state a claim. The court held that Hearts Bluff did not have a property interest that could be subject to a Fifth Amendment taking because a mitigation banking instrument is not “an inherent stick in a landowner's bundle.” Id. at 5. The court noted that no landowner has the capacity to develop a mitigation bank absent the enabling regulations and approval of the Corps of Engineers. Id. at 6. The court also rejected the argument that Hearts Bluff had an “investment-backed reliance” property interest that was taken, because Hearts Bluff had merely been deprived of a hope that it could create a mitigation bank, which is a collateral interest, not a compensable property interest. Id. at 7–8. The court did not reach the merits of the takings claim. Hearts Bluff timely appealed.

Discussion

I.

We review a decision by the Court of Federal Claims to dismiss a complaint for failure to state a claim upon which relief could be granted under RCFC 12(b)(6) de novo. See Acceptance Ins. Cos. v. United States, 583 F.3d 849, 853–54 (Fed.Cir.2009). To avoid dismissal for failure to state a claim, a complaint must allege facts “plausibly suggesting (not merely consistent with) a showing of entitlement to relief.” Id. at 853 (citations and quotations omitted). A court, however, is “not bound to accept as true a legal conclusion couched as a factual allegation.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)).

The Fifth Amendment of the Constitution prohibits the government from taking private property without just compensation. U.S. Const. Am. V. “Real property, tangible property, and intangible property all may be the subject of takings claims.” Conti v. United States, 291 F.3d 1334, 1338–39 (Fed.Cir.2002) (citing Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1019, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992); Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003–04, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984); and Andrus v. Allard, 444 U.S. 51, 65, 100 S.Ct. 318, 62 L.Ed.2d 210 (1979)). A “taking” may occur either by physical invasion or by regulation. See, e.g., Lucas, 505 U.S. at 1014–19, 112 S.Ct. 2886; Pa. Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 67 L.Ed. 322 (1922); Am. Pelagic Fishing Co. v. United States, 379 F.3d 1363, 1371 (Fed.Cir.2004); Maritrans Inc. v. United States, 342 F.3d 1344, 1351 (Fed.Cir.2003); Conti, 291 F.3d at 1338. This case concerns an alleged regulatory taking.

When evaluating whether governmental action constitutes a taking, a court employs a two-part test. Acceptance, 583 F.3d at 854; Am. Pelagic Fishing, 379 F.3d at 1372. First, as a threshold matter, the court determines whether the claimant has identified a cognizable Fifth Amendment property interest that is asserted to be the subject of the taking. Id.; see also Maritrans Inc., 342 F.3d at 1351. Second, if the court concludes that a cognizable property interest exists, it determines whether that property interest was “taken.” Id.; see also Palmyra Pac. Seafoods, L.L.C. v. United States, 561 F.3d 1361, 1364 (Fed.Cir.2009); Air Pegasus of D.C., Inc. v. United States, 424 F.3d 1206, 1212–13 (Fed.Cir.2005); Conti, 291 F.3d at 1339. “We do not reach this second step without first identifying a cognizable property interest.” Acceptance, 583 F.3d at 854 (quoting Air Pegasus, 424 F.3d at 1213); see Am. Pelagic Fishing, 379 F.3d at 1372 (“If the claimant fails to demonstrate the existence of a legally cognizable property interest, the court's task is at an end.”).

Hearts Bluff urges us to skip the first “cognizable property interest” part of the test and go directly to the merits under the Penn Central factors. See Penn Central Transp. Co. v. New York, 438 U.S. 104, 124, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). Hearts Bluff spends much of its brief arguing that we routinely reach the Penn Central factors in permit-based takings cases without discussing a cognizable property interest. In support of its position, Hearts Bluff relies primarily on cases relating to section 404 permits. E.g., Norman v. United States, 429 F.3d 1081, 1088 (Fed.Cir.2005); Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1175 (Fed.Cir.1994); Forest Props., Inc. v. United States, 39 Fed.Cl. 56 (1997), aff'd 177 F.3d 1360 (Fed.Cir.1999). The government responds that this court has consistently applied the two-part test in takings analyses and that the first inquiry, determining if there is a cognizable property interest, is a threshold matter that the court properly decides first. The government also notes that section 404 permits are distinct from mitigation banking.

The government is of course correct that section 404 permits are separate and distinct from the mitigation banking program. Section 404 permits allow landowners to conduct environmentally destructive activity on their land that they would normally be able to do but for the existence of government regulations. We have held that the denial of a section 404 permit could amount to a taking of a cognizable property right as it deprives the landowner of a right inherent in land ownership, as might certain zoning decisions. E.g., Palm Beach Isles Assocs. v. United States, 208 F.3d 1374, 1380–81 (Fed.Cir.2000) (holding that a section 404 permit denial constituted a categorical taking); Loveladies Harbor, Inc., 28 F.3d 1171 (holding that denial of permit under section 404 of was a taking); Fla. Rock Indus., Inc. v. United States, 18 F.3d 1560 (Fed.Cir.1994) (remanding for determination of partial taking regarding a permit under section 404).

Mitigation bank operators, on the other hand, do not...