City of Fresno v. United States, 16-1276C

CourtCourt of Federal Claims
Writing for the CourtArmando O. Bonilla, Judge
PartiesCITY OF FRESNO, et al., Plaintiffs, v. UNITED STATES, Defendant, and SAN LUIS & DELTA-MENDOTA WATER AUTHORITY, et al., and CENTRAL CALIFORNIA IRRIGATION DISTRICT, et al., Defendant-Intervenors.
Decision Date06 June 2022
Docket Number16-1276C

CITY OF FRESNO, et al., Plaintiffs,
v.

UNITED STATES, Defendant,

and SAN LUIS & DELTA-MENDOTA WATER AUTHORITY, et al., and CENTRAL CALIFORNIA IRRIGATION DISTRICT, et al., Defendant-Intervenors.

No. 16-1276C

United States Court of Federal Claims

June 6, 2022


Central Valley Project: Breach of Contract; Superior Water Rights

Nancie G. Marzulla and Roger J. Marzulla, Marzulla Law, LLC, Washington, DC, for plaintiffs. With them on the briefs was Cindy Lopez, Marzulla Law, LLC, Washington, DC. Craig A. Parton and Timothy E. Metzinger, Price, Postel & Parma LLP, Santa Barbara, CA, Of Counsel.

Matthew J. Carhart, Trial Attorney, Commercial Litigation Branch, Civil Division U.S. Department of Justice, Washington, DC, for defendant. With him on the briefs were Michael D. Granston, Deputy Assistant Attorney General, Patricia M. McCarthy, Director, Elizabeth M. Hosford, Assistant Director, and Vincent D. Phillips, Jr., Senior Trial Counsel, Commercial Litigation Branch, U.S. Department of Justice, Washington, DC. Amy L. Aufdemberge, Office of the Solicitor, U.S. Department of Interior, Washington, DC, Of Counsel.

Daniel J. O'Hanlon, Kronick, Moskovitz, Tiedemann & Girard, Sacramento, CA, for defendant-intervenor San Luis & Delta-Mendota Water Authority. Rebecca R. Akroyd, San Luis & Delta-Mendota Water Authority, Sacramento, CA, Of Counsel.

Andrew E. Shipley, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for defendant-intervenor Westlands Water District. Daniel S. Volchok, Philip E. Beshara, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, Jon D. Rubin, Westlands Water District, Fresno, CA, Of Counsel.

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Anthony Fulcher, Santa Clara Valley Water District, San Jose, CA, for defendant-intervenor Santa Clara Valley Water District.

Thomas M. Berliner, Duane Morris LLP, San Francisco, CA, for defendant-intervenor San Luis Water District.

Paul R. Minasian, Minasian, Meith, Soares, Sexton & Cooper, LLP, Oroville, CA, for defendant-intervenors San Luis Canal Company, Central California Irrigation District, Firebaugh Canal Water District, Columbia Canal Company, and San Joaquin River Exchange Contractors Water Authority.

Ellen L. Wehr, Grassland Water District, Los Banos, CA, for defendant-intervenor Grassland Water District.

David T. Ralston, Jr., Foley & Lardner LLP, Washington, DC, for defendant-intervenors Byron Bethany Irrigation District, Del Puerto Water District and James Irrigation District. Frank S. Murray, Anna S. Ross, Micah Zomer, Julia Di Vito, Foley & Lardner LLP, Washington, DC, Of Counsel.

OPINION AND ORDER

Armando O. Bonilla, Judge

Between 2012 and 2017, the State of California experienced a historic drought, prompting the Governor to declare a Drought State of Emergency from January 17, 2014, through April 7, 2017.[1] This case arises out of the difficult decisions made by the United States Bureau of Reclamation (Reclamation) in 2014 in managing and allocating the limited supply of water regulated through the Central Valley Project (CVP); more specifically, the allocation of San Joaquin River water between and among parties with competing contractual rights while complying with federal, state, and local environmental laws and regulations.[2]

Plaintiffs, including the City of Fresno and seventeen irrigation districts in California, filed this action claiming that the decisions made by Reclamation in 2014 effected a taking of their property (in the form of water and water rights) in violation of the Fifth Amendment to the

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United States Constitution as well as a breach of contract.[3] ECF 128-1. On March 25, 2020, this Court dismissed plaintiffs' takings claim for lack of standing, concluding that "none of the Plaintiffs possesses a property interest in the water supplied to them by or through Reclamation."[4] City of Fresno v. United States, 148 Fed.Cl. 19, 34 (2020). Pending before the Court are the parties' cross-motions for summary judgment on the breach of contract claim.[5]For the reasons set forth below, plaintiffs' motion for partial summary judgment is DENIED and defendant's and defendant-intervenors'[6] cross-motions for summary judgment are GRANTED as to liability.

BACKGROUND

I. HISTORICAL CONTEXT[7]

A. Central Valley Project

"The [CVP] is the largest federal water management project in the United States[, ]" built to reengineer natural water distribution "to serve the water needs in California's Central Valley Basin." Stockton E. Water Dist. v. United States, 583 F.3d 1344, 1349 (Fed. Cir. 2009), aff'd in part on reh'g, 638 F.3d 781 (Fed. Cir. 2011). Initiated by the State of California,

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the federal government assumed control over the CVP in 1935 and, two years later, assigned construction and operational responsibilities to Reclamation. Stockton E., 583 F.3d at 1349. Extending hundreds of miles through central California, the CVP comprises a complex network of dams, reservoirs, hydroelectric powerplants, canals, and other water storage and conveyance infrastructure. Id.; see also United States v. Gerlach Live Stock Co., 339 U.S. 725, 728 (1950). Through this network of facilities, the CVP captures, regulates, and redistributes the natural water flows of the San Joaquin River in the south and the Sacramento River in the north, refreshing arid land in the Central Valley and "mak[ing] water available where it would be of greatest service." Gerlach Live Stock, 339 U.S. at 728-29.

To secure the water rights necessary to construct and operate the CVP, discussed infra, Reclamation entered into a series of purchase contracts and exchange contracts (hereinafter "Exchange Contract") [8] with holders of water rights on the San Joaquin River. Plaintiffs thereafter entered into water-supply contracts with Reclamation to receive water through CVP's Friant Division (hereinafter "Friant Contract").[9]

In the southern portion of the Central Valley, San Joaquin River water is impounded by the Friant Dam (one of the initial CVP facilities constructed), diverted from its natural course, and forced into the Millerton Lake reservoir. See, e, g., Westlands Water Dist. v. United States (Westland I), 153 F.Supp.2d 1133, 1146 (E.D. Cal. 2001), aff'd, 337 F.3d 1092 (9th Cir. 2003). From there, through the associated Friant-Kern Canal to the south and Madera Canal to the north, Reclamation is able to furnish the diverted San Joaquin River water to plaintiffs in accordance with the Friant Contract. See generally ECF 204-4.

Aside from reengineering water flows for irrigation and other agricultural needs, the CVP serves numerous other beneficial uses and is subject to myriad statutory and regulatory requirements regarding water usage. See San Luis & Delta-Mendota Water Auth. v. United States, 672 F.3d 676, 682-83 (9th Cir. 2012) (discussing Reclamation's various obligations in operating the CVP). In 1992, for example, Congress passed the Central Valley Project Improvement Act (CVPIA) to, inter alia, "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." Pub. L. No. 102-575, § 3402, 106 Stat. 4600, 4706 (1992).

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B. Substitute Water Delivery Under the Exchange Contract

Diversion of San Joaquin River water at the Friant Dam was made possible by Reclamation's acquisition of water rights from the Exchange Contractors, who "hold riparian and pre-1914 appropriative rights to the San Joaquin River water south of Friant." Westland I, 153 F.Supp.2d at 1146-47. The acquisition was accomplished through: (1) a series of purchase agreements executed in 1939 by which the Exchange Contractors sold all of their San Joaquin River water rights to the United States, except and in excess of reserved waters measured by specified rates of flow in Schedule 1 of the contact, see ECF 204-1 at 4-5 (Articles 7 & 9); and (2) a series of exchange contracts simultaneously executed in 1939, which authorized the United States to "store and divert" the reserved waters in exchange for an agreement to provide "substitute water equivalent in quantity," see ECF 207-1 at 6-7 (Article 5).

The 1939 Exchange Contract was subsequently amended in 1956 and, again, in 1968. See ECF 204-2, 204-3. The 1968 Exchange Contract governs Reclamation's water delivery obligations to the Exchange Contractors in 2014 (i.e., the year at issue). Article 4(a) of the 1968 Exchange Contract, titled "Conditional Permanent Substitution of Water Supply," provides that the United States can use the San Joaquin River reserved waters "so long as, and only so long as, the United States does deliver to the [Exchange Contractors] by means of the [CVP] or otherwise substitute water in conformity with this contract." ECF 204-3 at 7-8. Article 8, quoted more fully below, specifies the "Quantity of Substitute Water":

During all calendar years, other than those defined as critical, the United States shall deliver to the [Exchange Contractors] for use hereunder an annual substitute water supply of not to exceed 840, 000 acre-feet in accordance with the [specified] maximum monthly entitlements[.]

Id. at 18-19. During critical years where water supply is deficient, the annual delivery quantity is reduced by approximately twenty-five percent to 650, 000 acre-feet. Id. at 19-20.

Since 1951, Reclamation has stored and diverted the Exchange Contractors' reserved San Joaquin River water at the Friant Dam and supplied them with substitute water through the Delta-Mendota Canal. See ECF 204-3 at 4-6 (Explanatory Recitals). Until 2014, moreover, the sole source of substitute water Reclamation used to address its water delivery obligations to the Exchange Contractors was water from the Sacramento-San Joaquin River Delta. See, e.g., ECF 204-12 at 2 (press release); ECF 204-7 at 2 (allocation letter).

C. Water Supply Service Under...

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