Stockton East Water District, et al. v. United States (February 20, 2007)
In this action against the United States, the United States Court of Federal Claims held that the Bureau of Reclamation did not breach several 1983 state water contracts with two California water districts when it withheld water from the New Melones Reservoir for fish and wildlife purposes, as required by the Central Valley Project Improvement Act. The court further found that the reduction in allocable water did not constitute a taking because the Bureau acted in its commercial capacity when it entered into the contracts, which meant that the plaintiffs’ only remedies were contractual.
In 1962, Congress authorized the construction of the New Melones Dam in Calaveras County, California. Construction on the dam was complete in 1978. However, the Federal Government could not fill the accompanying reservoir until it acquired the appropriate permits from the State of California. The federal government obtained these permits in 1973, but the State of California conditioned the issuance of the permits on the federal government: (1) agreeing to commit a certain amount of water determined by the State to fish and wildlife services; and (2) obtaining firm commitments from entities that would use the reservoir water.
In 1983, the Bureau commenced negotiations with Stockton East Water District (“Stockton”) and Central San Joaquin Water Conservation District (“Central”), among others, which resulted in firm commitments from both Stockton and Central for the consumptive use of the New Melones Reservoir surface water. The New Melones Reservoir was filled, and on December 19, 1983, the Bureau entered into separate contracts with Stockton and Central for the delivery of certain quantities of water from the New Melones Reservoir (the “1983 Contracts”).
Nearly ten years later, Congress passed the Central Valley Project Improvement Act (“CVPIA”), which became effective in 1993. One effect of the CVPIA was that it modified the use priorities for the water in the New Melones Reservoir by requiring the Bureau to release more water for fish and water quality needs than previously. As a result, Stockton and Central received less water under the 1983 Contracts.
Once the CVPIA became effective, Stockton and Central, along with the City of Stockton, San Joaquin County and the California Water Service Company (collectively, the “Plaintiffs”) filed a complaint in federal district court alleging that the Bureau had breached the 1983 Contracts and committed a taking of the Plaintiffs’ vested contractual property rights by reducing water allocations from the New Melones Reservoir below the amounts required under the 1983 Contracts. In 2004, the case was transferred to the United States Court of Federal Claims.
The Shortage Provision Of Article 9(A) Of The 1983 Contracts Limits The Bureau’s Liability For Reductions In The Amount Of Allocable Water Due To New Legislative Requirements.
Article 9(a) of the 1983 Contracts contains a clause protecting the United States and any division or officer thereof from liability under the contracts due to reductions in water allocations resulting from drought or other causes beyond their control. The Court of Federal Claims rejected Plaintiffs’ assertion that this so-called “shortage provision” only applied to acts of God and not to future legislation that, when implemented, results in reductions of water allocable under the 1983 Contracts. The court reasoned that the language of the 1983 Contracts provided sufficient support for interpreting the scope of Article 9(a) to encompass future amendments to federal reclamation law. Thus, the limitation on the Bureau’s liability for water shortages applied.
The Bureau’s Decision To Conservatively Operate The New Melones Dam To Reach The Goals Contained In The CVPIA Was Not, Absent Sufficient Evidence Otherwise, Unreasonable And Did Not Constitute A Breach Of The 1983 Contracts.
In addition to the shortage provision, Article 9(a) contains a clause that requires the Bureau to use all reasonable means to guard against a condition of shortage in the quantity of water available. Plaintiffs claimed that the state and federally mandated releases, the contractual obligations for senior water rights and other operational decisions made by the Bureau were unreasonable and arbitrary and thus failed to satisfy the standard imposed by Article 9(a). While the court suggested that unreasonable operation of the New Melones Dam could constitute sufficient grounds for Plaintiffs’ breach of contract claim, the court found that Plaintiffs failed to provide sufficient evidence that the operational decisions made by the Bureau were unreasonable, arbitrary or capricious. In so finding, the court pointed primarily to Plaintiffs’ failure to call any of the Bureau’s representatives to testify as witnesses. The court further noted that, absent an adverse inference arising from the testimony of a Bureau representative as to the operational decision-making surrounding the implementation of the CVPIA at the New Melones Dam, the Bureau’s election to operate the dam conservatively was not in itself unreasonable. Thus, the Bureau did not breach the 1983 Contracts.
The Bureau’s Reduction Of Water Allocable Under The 1983 Contracts Did Not Constitute A Taking Because The Bureau Acted In A Private Not Sovereign Capacity When It Entered Into The Contracts.
The court also briefly addressed Plaintiffs’ claim that the Bureau’s decision to reduce water allocations under the 1983 Contracts constituted a taking of a vested property right in violation of the Fifth Amendment. The court determined that, in entering the 1983 Contracts, the Bureau acted in a private commercial capacity and not in its sovereign capacity. As a result, the appropriate remedies for any actions by the Bureau relating to those contracts were contractual remedies as opposed to remedies for the violation of a constitutionally protected property right.
For further information please contact Philip Atkins-Pattenson and Katharine Allen. Philip Atkins-Pattenson is a partner in the Business Trial Practice Group in the firm’s San Francisco Office. Katharine Allan is an associate in the Real Estate, Environmental and Land Use and Natural Resources Practice Group in the firm’s San Francisco Office.