United States District Court, D. Alaska
SCOTT W. WALTHER and PIONEER RESERVE, L.L.C., Plaintiffs,
UNITED STATES OF AMERICA, et al., Defendants, and THE SU-KNIK MITIGATION BANK and SU-KNIK ENVIRONMENTS, LLC, Intervenor-Defendants.
H. Russel Holland United States District Judge
Motions to Dismiss
Defendant United States of America, on behalf of the U.S. Army Corps of Engineers, moves to dismiss plaintiffs’ second amended complaint. This motion is opposed. Intervenor-defendants also move to dismiss plaintiffs’ second amended complaint. This motion is opposed. Oral argument has not been requested and is not deemed necessary.
Plaintiffs are Scott W. Walther and Pioneer Reserve, L.L.C. Defendants are the United States of America and Christopher D. Lestochi, Colonel, District Commander, U.S. Army Corps of Engineers, Alaska District. Intervenor-defendants are The Su-Knik Mitigation Bank and Su-Knik Environments, LLC.
“Under the [Clean Water Act (CWA)], ‘any discharge of dredged or fill materials into ... waters of the United States  is forbidden unless authorized by a permit issued by the Corps of Engineers pursuant to’ Section 404 of the CWA[.]” Fairbanks N. Star Borough v. U.S. Army Corps of Engineers, 543 F.3d 586, 589 (9th Cir. 2008) (quoting Leslie Salt Co. v. United States, 55 F.3d 1388, 1391 (9th Cir. 1995)). “In issuing § 404 permits, the Corps must comply with the § 404(b)(1) Guidelines..., which are promulgated by the EPA pursuant to 33 U.S.C. § 1344(b)(1), and incorporated by the Corps into its own regulations.” Kentuckians for Commonwealth v. U.S. Army Corps of Engineers, 963 F.Supp.2d 670, 676 (W.D. Ky. 2013). “Under the Corps’ CWA Guidelines, a § 404 permit cannot issue ‘unless appropriate and practicable steps have been taken which will minimize potential adverse impacts of the discharge [of fill material] on the aquatic ecosystem.’” Ohio Valley Environmental Coalition v. Aracoma Coal Co., 556 F.3d 177, 202 (4th Cir. 2009) (quoting 40 C.F.R. § 230.10(d)). The EPA and Corps have made “‘no overall net loss’ the goal of the § 404 regulatory program and agree that mitigation has three components: avoidance, minimization, and compensatory mitigation.” Id. (citation and footnote omitted). “Avoidance is defined as the selection of the least environmentally damaging practical alternative.” Id. “Minimization is achieved through practicable project modifications and permit conditions that minimize adverse impacts.” Id. “Finally, compensatory mitigation is used where appropriate to compensate for unavoidable adverse impacts after all avoidance and minimization measures have been taken.” Id.
“On March 31, 2008, the EPA and the Corps issued revised regulations governing compensatory mitigation for authorized impacts to wetlands, streams, and other waters of the United States under CWA Section 404....” Kentuckians for Commonwealth, 963 F.Supp.2d at 676. Plaintiffs refer to these regulations as the “Final Rule.” “Permit applicants are responsible for proposing an appropriate compensatory mitigation option to offset unavoidable impacts.” 33 C.F.R. § 332.3(a)(1). The district engineer then evaluates the proposal. Id.
When evaluating compensatory mitigation options, the district engineer will consider what would be environmentally preferable. In making this determination, the district engineer must assess the likelihood for ecological success and sustainability, the location of the compensation site relative to the impact site and their significance within the watershed, and the costs of the compensatory mitigation project.
Id. Permissible mitigation methods include restoration, enhancement, establishment, and preservation. Id. § 332.3(a)(2). When preservation is used as the method of mitigation, certain criteria must be met, including that the resources to be preserved must be “under threat of destruction or adverse modifications[.]” Id. § 332.3(h)(iv).
Compensatory mitigation can be accomplished in one of three ways: 1) mitigation banks, 2) in-lieu fee programs, or 3) permittee-responsible mitigation, with the use of mitigation banks being the preferred method. Id. § 332.3(b). However, this preference “does not override a district engineer’s judgment as to what constitutes the most appropriate and practicable compensatory mitigation based on consideration of case-specific circumstances.” 73 Fed. Reg. 19, 594, 19, 628 (April 10, 2008).
“A mitigation bank is an offset of preserved and restored wetlands used to compensate for the environmental impact of more destructive land use.” Hearts Bluff Game Ranch, Inc. v. United States, 669 F.3d 1326, 1327 (Fed. Cir. 2012). “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.” Id. “The Corps is in charge of the mitigation banking program and it has issued regulations to establish procedures for granting instruments for mitigation banks.” Id.
Any private or public entity (referred to as a sponsor) may propose to establish a mitigation bank. 33 C.F.R. § 332.2. The “[m]itigation banking instrument” [MBI] is the “legal document for the establishment, operation, and use of a mitigation bank.” Id. The sponsor must propose properties for the mitigation bank site, which are then incorporated into the MBI. Id. § 332.8(d)(1).
Plaintiffs allege that Walther purchased land in the Mat-Su Borough which was suitable for development and that the Corps encouraged him to encumber his land with perpetual easements rather than develop it. More specifically, plaintiffs allege that “[t]he Corps assured Walther that it would require the [Alaska Railroad] to buy compensatory mitigation in the form of mitigation bank credits from a mitigation bank site to be established by Walther on a part of the Land, if and when the PMRE [Port McKenzie Rail Extension] project was issued a CWA § 404 permit.” Plaintiffs allege that “[f]ollowing these assurances, Walther formed and became an owner of Pioneer [Reserve L.L.C.], and Pioneer entered into a mitigation bank agreement (‘the Contract’) with the Corps.” “The Contract created a wetland mitigation bank known as the Pioneer Reserve Mitigation Bank.” “Following full execution of the Contract, the Land was conveyed to Pioneer” and “Pioneer proceeded to record perpetual conservation easements on [the] Land and paid ... $140, 000 to a third-party non-profit organization, as a ‘financial assurance’ to ensure Pioneer’s ongoing performance under the Contract.” “After Pioneer encumbered the Land with perpetual conservation easements, ... Pioneer was awarded wetland mitigation credits that it could sell to CWA § 404 permittees in order to satisfy their compensatory mitigation needs.” Plaintiffs allege, however, that
after Pioneer performed all of its obligations under the Contract, including encumbering the Land with conservation easements, and despite the fact that Pioneer’s mitigation banking credits were the highest ranked ecologically preferred compensatory mitigation available, rather than require the [Alaska Railroad] to satisfy its compensatory mitigation needs by purchasing Pioneer’s mitigation banking credits, the Corps ...