50 F.3d 677 (9th Cir. 1995), 93-17154, O'Neill v. United States

Docket Nº:93-17154.
Citation:50 F.3d 677
Party Name:Edwin R. O'NEILL, et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
Case Date:March 14, 1995
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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50 F.3d 677 (9th Cir. 1995)

Edwin R. O'NEILL, et al., Plaintiffs-Appellants,

v.

UNITED STATES of America, Defendant-Appellee.

No. 93-17154.

United States Court of Appeals, Ninth Circuit

March 14, 1995

Argued and Submitted Nov. 16, 1994.

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William M. Smiland, Donnelly, Clark, Chase & Smiland, Los Angeles, CA, for plaintiffs-appellants.

Robert L. Klarquist, U.S. Dept. of Justice, Environment and Natural Resources Div., Washington DC, for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before CHOY, FARRIS, and BRUNETTI, Circuit Judges.

CHOY, Circuit Judge:

Landowners and water users within "Area I" of the Westlands Water District appeal the district court's denial of their motion to enforce a stipulated judgment which required the United States to perform a 1963 long-term water service contract with the Westlands Water District. The district court held that the contract does not obligate the government to furnish to Westlands the full contractual amount of water when that water cannot be delivered consistently with the requirements of the Endangered Species Act ("ESA"), 16 U.S.C. Sec. 1531 et seq., and the Central Valley Project Improvement Act ("CVPIA"), Pub.L. No. 102-575, 106 Stat. 4706 et seq. The district court further held that Area I could seek judicial review of the agency actions which culminated in the contested water allocation, but that it must do so in a separate suit. We affirm these rulings.

I.

In 1963, the United States entered into a long-term water service contract with Westlands Water District pursuant to federal reclamation statutes. Under this contract, the United States agreed to construct the San Luis Unit of the Federal Central Valley Project ("CVP") in part to furnish water to the Westlands Water District. The CVP is the country's largest federal water reclamation project. The United States agreed to furnish, and the District agreed to pay for, 900,000 acre-feet of water annually subject to Article 11(a) which limits the government's liability for water shortages caused by "errors in operation, drought, or any other causes." Prior to executing the contract, the

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government conducted feasibility studies and the landowners and other interested parties testified before Congress in support of the project.

Until 1978, both parties performed the contract. Except for one year of drought, a minimum of 900,000 acre-feet of water was delivered annually to Area I landowners and water users. Bolstered by the water supply from the San Luis Unit, the landowners were able to expand their farming operations. However, in 1978, the government refused to perform the contract, maintaining that it was invalid. From that year until 1986, the government required the Westlands District to enter into interim contracts which permitted the government to divert water from Area I "for reasons other than dry or critically dry year," for reasons of "water quality control" in the Delta, or "for any environmental ... reasons." Then, in 1986 the parties stipulated to, and the court entered, a judgment ordering the United States to perform the 1963 contract.

In November of 1990, the Sacramento River winter-run chinook salmon was listed as a threatened species under the Endangered Species Act. 50 C.F.R. Sec. 227.4 (1993). ESA was enacted in 1973 to "halt and reverse the trend toward species extinction, whatever the cost." Tennessee Valley Auth. v. Hill, 437 U.S. 153, 184, 98 S.Ct. 2279, 2297, 57 L.Ed.2d 117 (1978). ESA Section 7(a)(2) requires all federal agencies "in consultation with and with the assistance of the Secretary [of the Interior or Commerce, to] insure that any action authorized, funded, or carried out by such agency ... is not likely to jeopardize the continued existence of any endangered species or threatened species...." 16 U.S.C. Sec. 1536(a)(2). Accordingly, when the winter-run chinook salmon was listed as a threatened species, the Bureau of Reclamation ("Bureau") entered into ESA consultation with the National Marine Fisheries Service ("NMFS"). As a result of this consultation, NMFS issued a biological opinion which concluded that the Bureau's continued operation of the CVP in the water year 1992-1993 was likely to jeopardize the continued existence of the salmon population. The opinion noted that jeopardy to the salmon could be avoided if the Bureau operated the CVP in accordance with certain prescribed alternatives.

While the Bureau was developing its initial 1993 CVP water allocation, the United States Fish and Wildlife Service issued a notice of intent to list another species of fish indigenous to the Sacramento-San Joaquin Delta, the delta smelt, as a threatened species. The delta smelt was listed on March 5, 1993. 50 C.F.R. Sec. 17.11 (1993). Consultation and a biological opinion followed with a result analogous to that in the salmon case.

In October 1992, Congress enacted CVPIA, amending the 1937 CVP reauthorization statute. CVPIA seeks to achieve "a reasonable balance among competing demands for use of Central Valley Project water, including the requirements of fish and wildlife, agricultural, municipal and industrial and power contractors." Section 3402(f). Section 3406(b)(2) of the CVPIA directs the Secretary to

dedicate and manage annually eight hundred thousand acre-feet of Central Valley Project yield for the primary purpose of implementing the fish, wildlife and habitat restoration purposes and measures authorized by this title; to assist the State of California in its efforts to protect the waters of the San Francisco Bay/Sacramento-San Joaquin Delta Estuary; and to help meet such obligations as may be legally imposed upon the Central Valley Project under State or Federal law following the date of enactment of this title, including but not limited to additional obligations under the Federal Endangered Species Act.

On February 15, 1993, the Bureau announced its initial allocation of CVP water for 1993. Under the final allocation, agricultural contractors south of the Sacramento-San Joaquin Delta, such as the Westlands District, were to receive only 50 percent of their contractual supply of water. Contractors north of the Delta were to receive 100 percent of their supply, as were "exchange contractors" south of the Delta.

On March 26, 1993, Area I filed a motion to enforce the 1986 stipulated judgment. The government argued that compliance with

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ESA and CVPIA required it to reduce the amount of water supplied to Area I and that such a reduction was covered by the liability limitation in Article 11 of the contract. The district court agreed with the government that Article 11 limited Area I's contractual rights to delivery of the 900,000 acre-feet of CVP water. The court also held that Area I could seek judicial review of the agency actions which culminated in the 1993 water allocation, but that it must do so in a separate suit. At the time of the district court's decision, the Westlands Water District had already filed such a suit in the same court; Area I has subsequently intervened. Westlands Water Dist. et al. v. United States et. al., 850 F.Supp. 1388 ("Westlands case"). 1

In this appeal, Area I raises the following issues: (1) whether Article 11(a) of the water service contract, which absolves the government of liability for water shortages due to drought or "any other causes," excuses the government from supplying the full contractual amount of water; (2) whether the district court should have considered extrinsic evidence in interpreting the water service contract; (3) whether the government expressly warranted that the contractual amount of water would be available; (4) whether Article 11 is valid and enforceable; and (5) whether the district court should have decided if environmental statutes did, in fact, mandate the reduction in water delivery to Area I.

II.

This court reviews de novo principles of contract interpretation as applied to the facts. Aetna Casualty and Surety Co. v. Pintlar Corp., 948 F.2d 1507, 1511 (9th Cir.1991). In particular, the determination of whether contract language is ambiguous is a question of law. Carpenters Pension Trust Fund v. Underground Constr. Co., 31 F.3d 776, 778 (9th Cir.1994).

Federal law governs the interpretation of contracts entered into pursuant to federal law where the government is a party. Kennewick Irr. Dist. v. United States, 880 F.2d 1018, 1032 (9th Cir.1989).

A.

Article 11(a) of the water service contract provides that the government shall not be held liable for "any damage, direct or indirect, arising from a shortage on account of errors in operation, drought, or any other causes." 2 The government contends this

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language is broad and unambiguous and that shortages stemming from mandatory compliance with ESA and CVPIA are shortages resulting from "any other cause." Therefore, the government concludes, it is not liable for its failure to deliver the full contractual amount of water to Area I. Area I maintains that the contract language is ambiguous, and limits the government's liability for water delivery only in the event of a "temporary emergency" such as a "rare time[ ] of severe drought." Appellants' Opening Brief at 9.

"A contract is ambiguous if reasonable people could find its terms susceptible to more than one interpretation." Kennewick, 880 F.2d at 1032. Area I finds ambiguity where none exists; the terms of Article 11(a) admit of one meaning and are internally consistent. On its face, Article 11(a) unambiguously disclaims any liability for damages in the event the United States is unable to supply water in times of shortage....

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