Federal Circuit Upholds Reclamation Contract Rights Against
Government Demands To Reallocate Water
On March 18, 2011, the U.S. Court of Appeals for the Federal
Circuit issued a decision with far-reaching implications for
water rights involving federal reclamation policy and the
federal Endangered Species Act----
Stockton East Water District, Central San Joaquin Water
Conservation District, and the California Water Service Company
v. United States. In this case, the Federal Circuit ruled
squarely in favor of protecting the federal reclamation contract
rights of the water districts against federal demands to
reallocate the district's water for fish protection purposes.
The Federal Circuit held that by refusing to deliver the water
to the water districts as required by the terms of their
contracts, the federal government had breached the water
delivery contracts and are thus liable for contract damages.
Background: The Central Valley Project
The Stockton East decision, like many other water
rights cases, arises in the arid San Joaquin Valley in
California, which the Court recognized is home to many water
disputes:
In the
history of the western United States, the fight for water rights
is a central theme. California, because a goodly part of the
state shares the desert-like conditions that lie at the root of
the fight, since before its founding has been one of the locales
for this battle. This case is another chapter in that state's
long-running history of water disputes.
The Central Valley Project in California is the largest federal
water management project in the United States. The New Melones
Unit of the Central Valley Project was completed in 1979. In
order to fill the reservoir created by the construction of the
New Melones Dam, the California State Water Resources Control
Board required the federal government to obtain contractual
"firm commitments" for the beneficial use of that water. Enter
the water districts in the Stockton East litigation.
The California legislature had authorized the creation of the
Central San Joaquin Water Conservation District and the Stockton
East Water District in order to stop the relentless draw-down of
aquifers by farmers and municipalities in San Joaquin County
(south of Sacramento). In 1983, the Stockton East and Central
water districts entered into nearly identical contracts with the
Bureau of Reclamation that entitled them to up to 155,000
acre-feet of water a year from the New Melones reservoir. Most
of Stockton East's water went to the City of Stockton and
surrounding towns, while Central's supply was directed to San
Joaquin farmers.
What Led To Stockton East v. United States
As required by their contracts, together the two water districts
spent almost $60 million to build infrastructure and facilities,
including a three-mile-long tunnel drilled through solid
mountain granite, to transport the water from this Sierra
foothills reservoir to their customers in the Central Valley.
But then in 1992, just as the tunnel was being completed and the
districts readied to receive their water, Congress passed the
Central Valley Project Improvement Act, a statute ordering the
Bureau of Reclamation to re-allocate 800,000 acre-feet of
Central Valley Project water from irrigation to help stem the
decline of fish populations in the Sacramento Delta. Reclamation
chose to annually satisfy a large chunk of this reallocation
requirement with water in the New Melones Reservoir earmarked
(but never delivered to) Central and Stockton, rather than
supply it to the districts.
Because this reallocation of water to fish protection left
little or no water to satisfy their contracts, the Districts
sued the United States asserting breach of their contracts and
taking of their water rights. Following an eight-day trial, the
trial court ruled for the Government. The districts appealed. On
September 30, 2009, the Federal Circuit reversed the trial
court's decision and remanded the case for a determination of
damages. But the Government asked the appeals court to rehear
its decision. Finally, on March 18, 2011, the Federal Circuit
denied that request, and again remanded the case back to the
trial court for a damages determination, "which to the extent
feasible should be expedited."
Fifth Amendment Rights Affirmed and Upheld
In addition to ruling in the water districts' favor on their
contract claims, the Federal Circuit reversed the trial court's
dismissal of the water districts' Fifth Amendment takings claims
for the two years in which they could not recover on their
contract claims. Rejecting the trial court's holding that the
existence of a government contract automatically precludes a
taking claim based on the same facts, the court relied on
standard rules of alternative pleading:
It cannot be understood as precluding a party from alleging in
the same complaint two alternative theories for recovery against
the Government, for example, one for breach of contract and one
for a taking under the Fifth Amendment to the Constitution. That
is expressly permitted by the Federal Rules, and the fact that
the theories may be inconsistent is of no moment.
"The federal government was required to obtain firm commitments
in order to get authorization from the State of California to
fill the New Melones Reservoir with water. It is only fair that
the Government be required to live up to its agreements," said
Nancie G. Marzulla, counsel for the water districts. "We look
forward to the damages proceeding."
