Posted by: Patricia Salkin | February 3, 2012

Federal Appeals Court Holds that an Opportunity to Operate a Mitigation Bank is Not a Property Interest Under the Takings Clause

Hearts Bluff Game Ranch bought around 4000 acres of land in Texas with the intention to use the land as a mitigation bank.  The purpose of a mitigation bank is to preserve wetlands in a certain area and, in exchange, use other land for more environmentally destructive uses.  The program is overseen by the Army Corps of Engineers who administer and approve mitigation banks.  Prior to its purchase of the property, Hearts Bluff contacted the Corps seeking assurance that the land could be used as a mitigation bank.  Although the Corps informed Hearts Bluff that they saw no impediments, after purchasing the land, the Corps were contacted by the Texas Water Development Board with problems.  The Corps learned that the State’s Water Plan would overlap with Hearts Bluff’s land, thus, they may not be able to use the land as a mitigation bank in perpetuity.  Since a requirement of the mitigation bank is that it should exist in perpetuity, the Corp denied Hearts Bluff’s application. 

After a denial of reconsideration by the Corps, Hearts Bluff sued the United States Government, alleging a takings claim.  The case was removed to federal court and dismissed for failure to state a claim.  Hearts Bluff appealed to the circuit court. 

The circuit court begins its analysis by explaining that a claim under the Fifth Amendment takings clause requires a court to consider a two-part test.  First, the court must determine whether there is a “cognizable Fifth Amendment property interest” that is the subject of the purported taking and, second, whether there was an actual taking.  Although Hearts Bluff argues that the court should skip the first step and analyze the merits of their claim, the court finds that it is settled law that a court must answer the first question as a threshold matter to any federal takings claim.  During this discussion, the court makes a distinction between  mitigation banking and section 404 permits.  Hearts Bluff argues, correctly, that denial of a section 404 permit may constitute a taking of a property right.  The court finds that the regulations governing mitigation banking and section 404 permits are different, thus different rules apply. 

The circuit court begins its analysis to determine whether there is a “cognizable Fifth Amendment property interest” at stake.  The court finds that, as a general rule, where a citizen purchases land that is subject to the control and discretion of the government from the very beginning, a property interest is often lacking.  The court examines the facts of the case and finds that Hearts Bluff never had a right to establish or sell mitigation bank instruments.  The court further finds that Hearts Bluff still have just as many rights to the land as they had upon purchase, thus, “the Corps denial did not diminish in any way the rights Hearts Bluff possessed” when the land was purchased.  

Although Hearts Bluff argues that they had a reasonable investment backed expectation because they spent a sum of money to begin development of a mitigation bank, the court points out that this is an analysis of the merits of the takings claim, not a property interest.  Finally, in holding that no property interest exists, the court reiterates that any “hopes and expectations of future property use” do not constitute cognizable property interests.   

Hearts Bluff Game Ranch, Inc. v. United States, 2012 WL 148692 (Fed. Cir. 1/19/2012)

The opinion can be accessed at:

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