United States Court of Appeals
for the Federal Circuit
__________________________
HEARTS BLUFF GAME RANCH, INC.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
2010-5164
__________________________
Appeal from the United States Court of Federal
Claims in Case No. 09-498, Senior Judge Robert H.
Hodges, Jr.
____________________________
Decided: January 19, 2012
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TERRY L. JACOBSON, Jacobson Law Firm, P.C., of Cor-
sicana, 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.
HEARTS BLUFF GAME RANCH v. US 2
__________________________
Before NEWMAN, LOURIE, and LINN, Circuit Judges.
LOURIE, Circuit Judge.
Hearts Bluff Game Ranch, Inc. (“Hearts Bluff”) ap-
peals 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 environ-
mental 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 partici-
pate in the program, and then can sell credits under the
instrument to developers to offset environmentally de-
structive 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
3 HEARTS BLUFF GAME RANCH v. US
instruments for mitigation banks. One of the require-
ments 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 suit-
able 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 creat-
ing 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 recommen-
dation 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
HEARTS BLUFF GAME RANCH v. US 4
Corps denied it the necessary permit to create a mitiga-
tion 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 instru-
ment 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 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286
(1986)).
5 HEARTS BLUFF GAME RANCH v. US
The Fifth Amendment of the Constitution prohibits
the government from taking private property without just
compensation. U.S. Const. Am. V. “Real property, tangi-
ble 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 (1992); Ruckelshaus
v. Monsanto Co., 467 U.S. 986, 1003–04 (1984); and
Andrus v. Allard, 444 U.S. 51, 65 (1979)). A “taking” may
occur either by physical invasion or by regulation. See,
e.g., Lucas, 505 U.S. at 1014–19; Pa. Coal Co. v. Mahon,
260 U.S. 393, 415 (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 consti-
tutes a taking, a court employs a two-part test. Accep-
tance, 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 cogni-
zable 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 claim-
ant fails to demonstrate the existence of a legally cogniza-
ble property interest, the court’s task is at an end.”).
HEARTS BLUFF GAME RANCH v. US 6
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 (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 cogni-
zable 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
7 HEARTS BLUFF GAME RANCH v. US
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
necessarily possess section 404 permits; they sell credits
from the mitigation banking program to section 404
permit holders or applicants so that the section 404
permit holders or applicants can satisfy the compensatory
mitigation obligations of section 404. As discussed below,
the mitigation banking program does not restrict land use
at all prior to entering into a mitigation banking instru-
ment. The mitigation banking program merely gives
access to the credit swapping program. Indeed, section
404 and mitigation banking are governed by different
regulations. Therefore, we do not agree with Hearts
Bluff’s argument that prior cases analyzing the Penn
Central factors with respect to section 404 permits govern
our threshold analysis with respect to mitigation banking
instruments. We do not find the section 404 permit cases
relevant.
We have established precedent for applying a two-
part test for governmental takings mentioned above.
Acceptance, 583 F.3d at 854; Am. Pelagic Fishing, 379
F.3d at 1372; see also Maritrans Inc., 342 F.3d at 1351;
Palmyra Pac. Seafoods, 561 F.3d at 1364; Air Pegasus,
424 F.3d at 1212–13; Conti, 291 F.3d at 1339. And it is
well settled that we do not reach the second step, evalua-
tion of the Penn Central factors, without first identifying a
cognizable property interest. Acceptance, 583 F.3d at 854;
see Am. Pelagic Fishing, 379 F.3d at 1372. We decline to
depart from such well-settled precedent. The Claims
Court was thus correct to determine first whether Hearts
Bluff had a cognizable Fifth Amendment property interest
before weighing the merits in a takings analysis.
HEARTS BLUFF GAME RANCH v. US 8
II.
The first step in our analysis then is to identify the
subject of the alleged taking. In assessing whether or not
a Fifth Amendment property interest exists, we look for
“crucial indicia of a property right,” such as the ability to
sell, assign, transfer, or exclude. Conti, 291 F.3d at 1342.
Stated differently, we determine whether the asserted
property right is “one of the sticks in the bundle of rights
that inhered in ownership of the underlying res.” Am.
Pelagic Fishing, 379 F.3d at 1382–83. Where a citizen
voluntarily enters into an area which from the start is
subject to pervasive Government control, a property
interest is likely lacking. See Mitchell Arms, Inc. v.
United States, 7 F.3d 212, 216 (Fed. Cir. 1993) (citing
Bowen v. Public Agencies Opposed to Social Security
Entrapment, 477 U.S. 41, 55 (1986)). That is not a per se
exclusion of all permit or regulatory based takings, as
Hearts Bluff argues. Instead, it is the nature of the
regulation and alleged property interest that determines
whether denial of a permit or license (or, in this case,
access to the mitigation bank program) is a cognizable
property interest.
Hearts Bluff asserts that as a landowner it is entitled
to operate a mitigation bank on its land and that the
Corps’ rejection of its mitigation bank proposal was a
taking of its property right. The government counters
that Hearts Bluff was never entitled to operate a mitiga-
tion bank solely by virtue of its ownership of the land and
that it did not have a property right in access to the
mitigation banking program because the program is
entirely a creature of the government and subject to
pervasive and discretionary government control. We
agree with the government that Hearts Bluff does not
possess a compensable property interest in obtaining a
mitigation banking instrument.
9 HEARTS BLUFF GAME RANCH v. US
“As an initial matter, a claimant seeking compensa-
tion from the government for an alleged taking of private
property must, at a minimum, assert that its property
interest was actually taken by the government action.”
Air Pegasus, 424 F.3d at 1215 (emphasis in original). In
American Pelagic Fishing, the plaintiff had asserted a
property right in a fishing permit in part based upon its
ownership of a vessel. 379 F.3d at 1373. We held in part
that there was no right to fish in the Exclusive Economic
Zone (“EEZ”) of the United States in the Atlantic Ocean
by virtue of purchasing a vessel: “[b]ecause the right to
use the vessel to fish in the EEZ was not inherent in its
ownership of the [vessel], American Pelagic did not suffer
the loss of a property interest . . . when its . . . permits
were revoked.” Id. at 1381. Similarly, in Mitchell Arms,
we held that the right to import and sell assault weapons
in domestic commerce was not “not inherent in [the]
ownership of the rifles.” Mitchell Arms, 7 F.3d at 217.
Here, Hearts Bluff has not been disturbed in the use of its
property. Hearts Bluff purchased land, not a mitigation
bank instrument or mitigation bank credits. At no point
did Hearts Bluff possess a right to sell or transfer mitiga-
tion bank credits or a mitigation bank instrument. It is
possible at some point in the future that the Corps could
grant a mitigation bank instrument applicable to the
property. But without such an instrument, Hearts Bluff
is still able to sell, assign, or transfer the land, or exclude
others from its use, as it always was able to do. Hearts
Bluff is even free to create and preserve environmentally
friendly wetlands on the same property, as it desired to do
under the mitigation banking program. In short, the
Corps’ denial did not diminish in any way the rights
Hearts Bluff possessed the day it purchased the land,
after it applied for the permit, or after the Corps denied
the permit. Owning land in and of itself does not give rise
to a right to run a mitigation bank, and obtaining a
HEARTS BLUFF GAME RANCH v. US 10
mitigation instrument is therefore not a cognizable prop-
erty interest.
Furthermore, we have rejected claims of a cognizable
property interest in government programs where the
government has discretionary authority to deny access to
that program, where the alleged property is subject to
pervasive government control, or where the property is
entirely a product of government regulations. See, e.g.,
Mitchell Arms, 7 F.3d at 216 (“[E]nforceable rights suffi-
cient to support a taking claim against the United States
cannot arise in an area voluntarily entered into and one
which, from the start, is subject to pervasive Government
control.”).
For example, in Acceptance, we held that the plain-
tiff’s interest in selling American Growers’ crop insurance
policies was not a legally cognizable property interest
because the plaintiff “could not freely transfer the policies
at issue” without discretionary government approval,
despite the fact that an insurance company may generally
have the right to sell its policies. Acceptance, 583 F.3d at
857–58. We found that the plaintiff relinquished its right
to freely transfer American Growers’ insurance policies in
exchange for the benefits of the government crop insur-
ance program. Id. at 858. In American Pelagic Fishing,
the plaintiff had asserted a property right in a fishing
permit. 379 F.3d at 1373. We held that there was no
property interest in the fishing permit because it lacked
the crucial indicia of a property right (e.g., the ability to
assign, sell, or transfer its permit) and because the gov-
ernment had the discretion to deny or sanction the per-
mit. Id. at 1374. And in Conti we held that there was no
cognizable property interest in a fishing permit because
the plaintiff did not have “[t]he right[ ] to sell, assign, or
otherwise transfer” the permit and “the government at all
11 HEARTS BLUFF GAME RANCH v. US
times retained the right to revoke, suspend, or modify the
permit.” Conti, 291 F.3d at 1341–42.
Similarly here, it is undisputed that the Corps has
discretionary authority to deny access to the mitigation
bank program. The mitigation banking program is run
exclusively by the Corps, subject to its pervasive control,
and no landowner can develop a mitigation bank absent
Corps approval. Mitigation banking in its entirety would
not exist without the enabling government regulations.
Under our precedent, therefore, the Corps’ discretionary
denial of access into the Corps program cannot be a
cognizable property interest. As Hearts Bluff does not
have a property interest in access to the program, it
likewise does not have a property interest in the pro-
gram’s related benefits, such as the mitigation banking
instrument and credits.
Finally, Hearts Bluff argues that the representations
by the Corps that the land was suitable for a mitigation
bank gave rise to a reasonable investment-backed expec-
tation property interest. Hearts Bluff argues that the
Corps’ representations caused it to invest hundreds of
thousands of dollars in developing a mitigation bank. The
government responds that Hearts Bluff merely hoped that
the Corps would exercise its discretion and authorize
entry into a mitigation banking instrument, and that such
hope or expectation is a collateral interest, not a cogniza-
ble property interest. Again, we agree with the govern-
ment.
First and foremost, the “reasonable investment-
backed expectation” is part of a Penn Central merits
analysis. Schooner Harbor Ventures, Inc. v. United
States, 569 F.3d 1359, 1362 (Fed. Cir. 2009) (“Penn Cen-
tral considered and balanced three factors: (1) economic
impact, (2) reasonable investment backed expectations,
HEARTS BLUFF GAME RANCH v. US 12
and (3) the character of the government action.”). As we
have already indicated, because Hearts Bluff did not have
a cognizable property interest by virtue of its ownership of
land or in the denial of its application, we do not reach the
second step analyzing investment-backed expectations
under Penn Central.
Hearts Bluff emphasizes that it invested in the prop-
erty based on the hope that it and the Corps would enter
into a mitigation banking instrument and Hearts Bluff
could then operate a mitigation bank and sell the related
credits. But such hopes and expectations of future prop-
erty use are not in and of themselves a cognizable prop-
erty interest. Acceptance, 583 F.3d at 858–59 (“[A]ny
expectation that the [government] would approve of
future transactions does not rise to the level of a cogniza-
ble property interest . . . .”); Mitchell Arms, 7 F.3d at 217
(“[T]he Fifth Amendment concerns itself solely with the
‘property,’ i.e., with the owner’s relation as such to the
physical thing and not with other collateral interests
which may be incident to his ownership.”) (quoting United
States v. General Motors Corp., 323 U.S. 373, 378 (1945)).
In Mitchell Arms, the plaintiff had an expectation that it
would sell weapons purchased overseas in the United
States. We clarified in a later case that that expectation
was a collateral interest and that denying a permit to sell
those weapons was not a cognizable property interest.
Cienega Gardens v. United States, 331 F.3d 1319, 1336
(Fed. Cir. 2003); see Mitchell Arms, 7 F.3d at 217. The
expectation of receiving a mitigation banking instrument
is a similar collateral interest. In other words, relying on
representations by the Corps in purchasing the land in
the hope that the government will grant a discretionary
mitigation banking permit does not create a compensable
property interest. At its core, Hearts Bluff argues that it
detrimentally relied on the promises and representations
13 HEARTS BLUFF GAME RANCH v. US
of the Corps. Such detrimental reliance, however, does
not create a property right under takings law.
As for Hearts Bluff’s assertion that the denial of the
mitigation banking instrument was arbitrary and capri-
cious, that issue is not before us. Hearts Bluff brought
suit under the Tucker Act, a concession that the govern-
ment action was valid. Tabb Lakes, Ltd. v. United States,
10 F.3d 796, 802 (Fed. Cir. 1993) (“[The] claimant must
concede the validity of the government action which is the
basis of the taking claim to bring suit under the Tucker
Act.”). In order to challenge the legality of the denial of
the mitigation banking instrument, Hearts Bluff would
have had to sue in a district court under the Administra-
tive Procedure Act. Crocker v. United States, 125 F.3d
1475, 1476 (Fed. Cir. 1997) (The Court of Federal Claims
“lacks the general federal question jurisdiction of the
district courts, which would allow it to review [an]
agency’s actions and to grant relief pursuant to the Ad-
ministrative Procedure Act.”). It did not.
CONCLUSION
Because the Court of Federal Claims did not err in
holding that Hearts Bluff did not possess a legally cogni-
zable Fifth Amendment property interest in a mitigation
bank instrument, we affirm.
AFFIRMED