Natural Resources Defense Council et al v. Norton et al, No. 1:2005cv01207 - Document 834 (E.D. Cal. 2009)

Court Description: Supplemental Memorandum Decision re Cross Motions for Summary Judgment Addressing Applicability of National Association of Home Builders v. Defenders of Wildlife, 127 S. Ct. 2518 (2007), to Plaintiffs Request for Rescission of the Sacramento River Settlement Contracts, signed by Judge Oliver W. Wanger on 04/27/09.

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1 UNITED STATES DISTRICT COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 4 NATURAL RESOURCES DEFENSE COUNCIL, et al., 5 Plaintiffs, 6 1:05-CV-01207 OWW SMS v. 7 8 DIRK KEMPTHORNE, Secretary, U.S. Department of the Interior, et al., 9 Defendants. 10 11 SAN LUIS & DELTA-MENDOTA WATER AUTHORITY, et al., 12 13 14 Defendant-Intervenors. ANDERSON-COTTONWOOD IRRIGATION DISTRICT, et al., Joined Parties. 15 TABLE OF CONTENTS 16 17 18 19 20 I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 4 II. FACTUAL BACKGROUND . . . . . . . . . . . . . . . . . . . . 6 A. General History of The CVP and Relevant State Law Doctrines. . . . . . . . . . . . . . . . . . . . . . 6 B. The Bureau s Initiation of Permit Applications for the CVP Before the State Board. . . . . . . . . . . . . 10 C. The 1956 Cooperative Studies and Related Analyses. D. Van Camp s Summary of the Evidence Underlying the 1956 Cooperative Study Program and Related Investigations. . . . . . . . . . . . . . . . . . . . . . . . . . 15 E. D-990 . . . . . . . . . . . . . . . . . . . . . . . 17 F. 1951 House Interior and Insular Affairs Committee Report . . . . . . . . . . . . . . . . . . . . . . 21 Negotiation of the SRS Contracts. . . . . . . . . . 22 21 22 23 24 25 26 27 SUPPLEMENTAL MEMORANDUM DECISION RE CROSS MOTIONS FOR SUMMARY JUDGMENT ADDRESSING APPLICABILITY OF NATIONAL ASSOCIATION OF HOME BUILDERS V. DEFENDERS OF WILDLIFE, 127 S. CT. 2518 (2007), TO PLAINTIFFS REQUEST FOR RESCISSION OF THE SACRAMENTO RIVER SETTLEMENT CONTRACTS. G. 28 1 12 1 H. The SRS Contracts. 2 I. Decision 1641. 3 J. CVPIA. 4 III. 5 . . . . . . . . . . . . . . . . 22 . . . . . . . . . . . . . . . . . . 23 . . . . . . . . . . . . . . . . . . . . . . 24 . . . . . . . . . . . . . . . . . . . . . . . 25 Threshold Issues. . . . . . . . . . . . . . . . . . 25 ANALYSIS A. 6 1. Federal Defendants Argument that Summary Judgment Should be Granted on Other Grounds Raised in Their Summary Judgment Briefs. . . . . . . . . . . . 25 2. Proceedings Not Intended to Adjudicate Any Party s Water Rights. . . . . . . . . . . . . . . . . 25 3. Preliminary Nature of Previous Discussions Regarding Home Builders. . . . . . . . . . . . 7 8 9 10 11 25 4. The ESA and CVPIA Apply to the SRS Contractors. . . . . . . . . . . . . . . . . . . . . . . . 26 5. Evidentiary Matters. . . . . . . . . . . . . . 12 27 13 B. 14 Does Section 7 of the ESA Apply to the Bureau s Implementation and/or Execution of the SRS Contracts? . . . . . . . . . . . . . . . . . . . . . . . . . 28 15 1. Legal Framework. . . . . . . . . . . . . . . . 28 2. Do the SRS Contracts Significantly Constrain the Bureau s Discretion to Modify Deliveries Under the SRS Contracts? . . . . . . . . . . . . . . . . 38 16 17 18 a. Article 3(g)(3). . . . . . . . . . . . . 39 b. The Shasta Critical Year Shortage Provision. . . . . . . . . . . . . . . . . . . . . 41 19 20 21 22 3. Do the Original SRS Contracts Significantly Constrain the Bureau s Discretion to Negotiate Upon Renewal for New or Modified Terms for the Benefit of the Smelt? . . . . . . . . . . . . 44 23 a. 24 25 b. Basic Principles of Federal Contract Interpretation. . . . . . . . . . . . . . 45 Application to Relevant SRS Contract Language . . . . . . . . . . . . . . . . . . . . 47 26 (1) Article 9. . . . . . . . . . . . . . 47 (2) Article 2. . . . . . . . . . . . . . 50 27 28 2 1 (3) Alternative interpretations of Article 9(a) . . . . . . . . . . . . . . . . 52 2 c. The Unmistakability Doctrine. . . . . . . 53 d. Scope of Article 9(a). 59 e. Conclusion Regarding Article 9(a). f. Anderson Cottonwood Irrigation District & Sutter Mutual Water Company Renewal Contracts Water Reductions. . . . . . . . . . . . . 61 g. Impact of the CVPIA and D-1641 on SRS Contract Renewal. . . . . . . . . . . . . 63 Effect of Reclamation Act Section 8 on the Bureau s Discretion . . . . . . . . . . . . . 64 3 . . . . . . . . . 4 . . . 61 5 6 7 8 9 4. 10 11 a. Relevant Background Principles of California Water Law. . . . . . . . . . . . . . . . 69 12 (1) California s Dual System of Water Rights. . . . . . . . . . . . . . . 69 (2) Area of Origin Protections. 70 (3) Reasonable & Beneficial Use/Prohibition of Unreasonable Use. . . . . . . . . 71 (4) Public Trust Doctrine. . . . . . . . 13 . . . . 14 15 16 73 17 b. D-990. . . . . . . . . . . . . . . . . . 74 c. D-990 s Reliance on the 1956 Study & Its Progeny Does Not Demonstrate the Exact Nature and Extent of the SRS Contractors Underlying Water Rights. . . . . . . . . . . . . . . 75 21 d. The Effect of Condition 23. . . . . . . . 22 e. D-990 Does Not Substantially Constrain the Bureau s Discretion to Negotiate Modifications to the Settlement Contracts. . . . . . . . . . . . . . . . . . . . . 83 f. Preemption Analysis Unnecessary. 18 19 20 23 79 24 . . . . 84 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . 85 25 IV. 26 27 28 3 1 2 I. INTRODUCTION The November 19, 2008, Memorandum Decision Re: Cross Motions 3 for Summary Judgment Re Contract Rescission ( Memorandum 4 Decision ), called for further briefing addressing the 5 applicability of the recent Supreme Court case, National 6 Association of Home Builders v. Defenders of Wildlife, 127 S. Ct. 7 2518 (2008), to Plaintiffs request for rescission of a number of 8 Sacramento River Settlement Contracts ( SRS Contracts ): 9 10 11 12 13 To resolve the applicability of Home Builders ... it is necessary for the Federal Defendants and/or the Settlement Contractors to present evidence on the nature and extent of their claimed senior water rights. If, arguendo, this evidence establishes that the Settlement Contractors hold senior rights to a certain volume of water, it is appropriate to determine as a matter of law that the Bureau lacks any discretion under Home Builders over that volume of SRS Contract water. 14 Memorandum Decision, Doc. 761, at 70:8-16 (emphasis added). 15 A December 3, 2008 scheduling conference confirmed that 16 these proceedings do not involve an actual adjudication of the 17 water rights of any parties in this case. See Reporters 18 Transcript, Dec. 3, 2008, Doc. 764, at 7-8, 18, 28. 19 A January 14, 2009 Supplemental Scheduling Conference Order 20 defined the remaining issues. 21 22 23 24 By January 30, 2009, the Sacramento River Settlement Contractor parties shall file further admissible evidence and supporting pleadings regarding the nature and extent of the Settlement Contractors water rights in order to resolve the applicability of the Supreme Court s decision in [Home Builders], 127 S. Ct. 2518 (2007), and to further narrow the issues in this case. 25 See Doc. 769 at 2. 26 On January 28, 2009, Plaintiffs filed a motion for 27 certification of interlocutory appeal or, in the alternative, for 28 4 1 reconsideration of the district court s November 19, 2008 2 memorandum decision. Doc. 770. This motion was denied without 3 prejudice as premature on the ground that the November 19, 2008 4 decision was not completed nor final. Doc. 811, filed Feb. 12, 5 2009. 6 On January 30, 2008, two groups of Sacramento River 7 Settlement Contractors ( SRS Contractors ), Glenn Colusa 8 Irrigation District ( GCID ), et al., and Reclamation District 9 No. 108 ( RD 108 ), et al., filed separate memoranda addressing 10 the district court s request. Docs. 772 & 773. GCID also filed 11 the declaration of Marc Van Camp along with voluminous supporting 12 documentation. See Docs. 775-810. 13 Plaintiffs responded. Federal Defendants and Doc. 815, filed Feb. 27, 2009; Doc. 820, 14 corrected version, filed Mar. 2, 2009. Oral argument was heard 15 on March 13, 2009, after which the matter was submitted for 16 decision. Doc. 826. On March 24, 2009, Federal Defendants 17 sought to file a supplemental brief to address the application of 18 Home Builders to this case. Doc. 827. The same day, Plaintiffs 19 opposed the request, objecting that supplemental briefing would 20 further delay a decision in this case: Plaintiffs are anxious 21 to obtain a ruling on this matter, as the Bureau s implementation 22 of the Sacramento River Settlement Contracts is likely to have a 23 significant effect on threatened and endangered fish and their 24 critical habitat this year. 25 Doc. 828. at 2. This Memorandum Decision incorporates the November 19, 2008 26 Memorandum Decision, except that: (a) where inconsistent, this 27 Decision shall control, and (b) Part VI.D.1. of the November 19, 28 2008 Decision is superceded by this Memorandum Decision. 5 1 2 II. FACTUAL BACKGROUND Earlier decisions in this case set forth extensive 3 background describing the coordinated operations of the Central 4 Valley Project ( CVP ) and State Water Project ( SWP ). 5 e.g., Doc. 363, filed May 25, 2007; Doc. 761. See, As some of the 6 disputed water rights predate the Projects themselves, a review 7 of the Projects history and the legal relationship between the 8 SRS Contractors and Interior is necessary. 9 10 A. General History of The CVP and Relevant State Law Doctrines. 11 The California Court of Appeal, Third Appellate District, 12 performed a comprehensive review of the relevant history in El 13 Dorado Irrigation Dist. v. State Water Resources Control Board, 14 142 Cal. App. 4th 937 (2006): 15 16 The History Of Comprehensive Water Planning In California *** 17 18 19 20 21 22 23 24 25 26 27 28 As former Presiding Justice John T. Racanelli explained in United States v. State Water Resources Control Bd. (1986) 182 Cal.App.3d 82, 98: California s critical water problem is not a lack of water but uneven distribution of water resources. The state is endowed with flowing rivers, countless lakes and streams and abundant winter rains and snowfall. But while over 70 percent of the stream flow lies north of Sacramento, nearly 80 percent of the demand for water supplies originates in the southern regions of the state. Efforts to solve this problem date back more than 100 years. In the early 1870 s, President Ulysses Grant appointed a commission under the leadership of Colonel B.S. Alexander (Alexander Commission) to study California s irrigation problem. (Cooper, Aqueduct Empire, [1968], p. 42.) The Alexander Commission was the first to point out ... that the Central Valley s most bountiful water supplies lay in the Sacramento River region, in contrast to potential shortages in the valley of the San Joaquin. (Id. at pp. 42-43.) The 6 1 2 3 4 5 6 7 8 Commission made several proposals for basin-wide storage and distribution of water. (Id. at p. 42.) The work of the Alexander Commission was followed in the late 1870 s by the work of William Hammond Hall, the first State Engineer, who was appointed to investigate, among other things, the problems of irrigation in California. (Stats. 1878, ch. 429, § 3, p. 634; Cooper, Aqueduct Empire, supra, at p. 43.) Hall took his assignment seriously and spoke out for coordinated region-wide water development. But in that respect he was a generation ahead of his time.... In a time of rampant self-interest Hall s farsighted vision of systematic development went largely unrecognized. (Cooper, supra, at pp. 43-44.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Forty years later, in 1919, Colonel Robert Bradford Marshall, chief hydrographer of the United States Geological Survey, followed in Hall s footsteps when he proposed to the governor of California a series of storage reservoirs and canals in the Central Valley. (Cooper, Aqueduct Empire, supra, at p. 50; see also Rogers and Nichols, Water for California (1967) § 27, p. 46.) [I]n the hortatory language of a crusader, [Colonel Marshall] sketched, summarized and espoused for California the inevitable water logistics which seventy years of cumulative geographic and hydrologic evidence demanded: redistribution of water from north to south; an integrated system of statewide waterworks; the Central Valley Project in all its splendid promise; the east and west side canals flanking that valley; tunnels and pumps conveying to southern California a share of the state s endowment. (Cooper, supra, at pp. 50-51.) In 1921, the California Legislature took up the search for a solution to California s water problem when it directed the state engineering department to determine a comprehensive plan for the accomplishment of the maximum conservation, control, storage, distribution and application of all the waters of the state, and to estimate the cost of constructing dams, canals, reservoirs or other works necessary in carrying out this plan. (Stats.1921, ch. 889, § 4, p. 1686.) Development of this comprehensive water plan for California continued over the next decade, with periodic reports to the Legislature. (See Rogers and Nichols, Water for California, supra, § 27, p. 46; Ivanhoe Irr. Dist. v. All Parties (1957) 47 Cal.2d 597, 614, revd. 357 U.S. 275.) In 1927, while the water plan was still being developed, a joint Senate-Assembly committee recognized the need to file on, or withdraw from filing by 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 private parties, the water rights to be utilized and required for the consummation of the co-ordinated plan. (25 Ops.Cal.Atty.Gen. 8, 11 (1955).) Accordingly, the Legislature passed the Feigenbaum Act (Stats.1927, ch. 286, pp. 508-510), which was later codified as Water Code section 10500 et seq.[] (See 25 Ops.Cal.Atty.Gen., supra, at p. 11.) The Feigenbaum Act directed the Department of Finance to make and file an application or applications for any water or the use thereof which in the judgment of the state department of finance is or may be required in the development and completion of the whole or any part of a general or coordinated plan looking towards the development, utilization or conservation of the water resources of the state. (Stats.1927, ch. 286, § 1, pp. 508-509; see § 10500.) The act further provided that the priority of any such application would be the effective date of the act, which was July 29, 1927.[] (Stats.1927, ch. 286, § 1.) The effect of the [Feigenbaum Act] was to withdraw the then unappropriated waters of the State filed on by the Department of Finance from any further appropriation by private parties. (25 Ops.Cal.Atty.Gen., supra, at p. 11.) The Feigenbaum Act also gave the Department of Finance the power, in its discretion, to release from priority or to assign any portion of or all of any of the appropriations that may be filed under the provisions of this act when such release or assignment is for the purpose of development not in conflict with such general or coordinated plan. (Stats.1927, ch. 286, § 1, p. 509; see § 10504 [ The board may release from priority or assign any portion of any application filed under this part when the release or assignment is for the purpose of development not in conflict with such general or coordinated plan or with water quality objectives established pursuant to law ].) 19 25 It was under th[e] authorization [of the Feigenbaum Act] that the Director of Finance, beginning in 1927, filed some 37 applications on behalf of the state on streams within the central valley area .... (Ivanhoe Irr. Dist. v. All Parties, supra, 47 Cal.2d at p. 614.) One of those state-filed applications, application No. 5645, was filed on July 30, 1927. That application sought a permit to appropriate for irrigation and domestic use various amounts of water from various points in El Dorado County on tributaries to the American and Cosumnes Rivers, including-as relevant here-the South Fork of the American River. 26 The History Of The Area Of Origin Protections 27 In 1931, the Division of Water Resources submitted a comprehensive series of reports on the State Water Plan to the Legislature. (25 Ops.Cal.Atty.Gen., supra, at p. 20 21 22 23 24 28 8 1 2 3 4 5 6 7 8 9 10 13.) That same year, the Legislature was called upon to amend the Feigenbaum Act of 1927 by extending the date to which State filings would be exempted from requirements of diligence. (Id. at p. 14.) The bill introduced to make this amendment was [itself] amended before final passage to provide a further restriction on the authority of the Department of Finance to release from priority or to assign any of the State s filings. (Ibid.) Specifically, the Legislature amended the Feigenbaum Act to provide that no such priority shall be released, or assignment made of any such appropriation that will, in the judgment of the state department of finance, deprive the county in which such appropriated water originates, of any such water necessary for the development of such county. (Stats.1931, ch. 720, § 1, p. 1515.) This amendment was the culmination of several attempts since 1925 to protect the counties of origin against exportation of water which might be needed by them in their own future development. (25 Ops.Cal.Atty.Gen., supra, at p. 12.) 11 12 13 14 15 16 17 18 19 20 Two years later, in 1933, [a]s the result of the prolonged studies and planning by the state, the Legislature ... enacted a statute designating the Sacramento-San Joaquin coordinated project as the Central Valley Project (the CVP). (Ivanhoe Irr. Dist. v. All Parties, supra, 47 Cal.2d at p. 614.) Part of the Central Valley Project Act of 1933 was a provision that later became section 11460, which provides: In the construction and operation by the department of any project under the provisions of this part a watershed or area wherein water originates, or an area immediately adjacent thereto which can conveniently be supplied with water therefrom, shall not be deprived by the department directly or indirectly of the prior right to all of the water reasonably required to adequately supply the beneficial needs of the watershed, area, or any of the inhabitants or property owners therein. FN5 (Stats.1933, ch. 1042, § 11, pp. 2650-2651.) 21 22 23 24 25 26 27 FN5. Although on its face this provision applies only to the Department, section 11128 makes the statute applicable to the Bureau as well. The limitations prescribed in Section 11460 and 11463 shall also apply to any agency of the State or Federal Government which shall undertake the construction or operation of the project, or any unit thereof, including, besides those specifically described, additional units which are consistent with and which may be constructed, maintained, and operated as a part of the project and in furtherance of the single object contemplated by this part. (§ 11128.) 28 9 1 The CVP 2 Construction of the CVP began in 1937. It is now one of the world s most extensive water transport systems.... Shasta Dam on the upper Sacramento River is the focal point of the CVP. Shasta Dam was completed in 1945 but began storing water and generating electric power in 1944. The waters of the Sacramento River which flow past the Shasta Dam are augmented by additional water supplies brought through a tunnel from the Trinity River and from reservoirs formed by Folsom and Nimbus Dams on the American River. About 30 miles south of Sacramento, the Delta Cross Channel regulates the passage of Sacramento River water through the Delta to the Tracy Pumping Plant. [United States v. State Water Resources Control Board, supra, 182 Cal.App.3d at p.99.] 3 4 5 6 7 8 9 10 *** 11 The appropriative water rights necessary for operation of the CVP included rights acquired by assignment of various state-filed applications. Indeed, as of 1957, [t]he greater portion of water to which the United States ha[d] acquired rights [wa]s by assignments from the state s Director of Finance. [Citation.] Four assignments of applications for the appropriation of unappropriated water of the Sacramento River, totaling 35,000 second-feet diversion and 12,690,000 acre-feet annual storage, were made on September 3, 1938.... (Ivanhoe Irr. Dist. v. All Parties, supra, 47 Cal.2d at p. 618.) 12 13 14 15 16 17 142 Cal. App. 4th at 945-949 (parallel citations and footnotes 18 omitted). 19 20 B. 21 22 The Bureau s Initiation of Permit Applications for the CVP Before the State Board. The Bureau of Reclamation ( Bureau or Reclamation ) took 23 over operation of the CVP on behalf of the United States in the 24 late 1930s. See SC 036631; see also State Water Board Decision 25 26 27 28 1 All SC references are to the corresponding bates stamped documents submitted as exhibits to the Van Camp Declaration, Doc. 781-806. 10 1 990 at 5-6.2 In 1938, the State of California assigned to the 2 United States a number of pending water rights applications 3 related to the mainstem Sacramento River. SC 03663. In 1952, 4 another application for direct diversion from Delta channels was 5 assigned to the United States. SC 03664. The United States 6 applied to the State Water Rights Board (the Board -- a 7 predecessor to the State Water Resources Control Board ( SWRCB ))3 8 for permits to operate the CVP with water from the assigned water 9 rights, along with a 1943 water rights application for power and 10 incidental domestic purposes at Keswick Power Plant. D-990 at 6, 11 10-14. 12 One of the central purposes of the state water rights 13 application/permitting process is to determine whether there is 14 sufficient water available to satisfy both senior rights-holders 15 and the applicant s requested appropriation. California Water 16 Code ( CWC ) § 1375 ( As prerequisite to the issuance of a permit 17 to appropriate water ... [t]here must be unappropriated water 18 available to supply the applicant ); 23 Cal. Admin. Code § 731(a) 19 ( A person who claims an existing right to the use of water shall 20 be granted a permit or license to appropriate no more water than 21 22 23 24 25 26 27 28 2 Available at http://www.waterrights.ca.gov/hearings/decisions/WRD990.PDF (last visited, April 6, 2009). 3 The Water Rights Board was created by the California Legislature in 1956 to administer water rights. See SWRCB Cases, 136 Cal. App. 4th 674, 695 n.9 (2006) (citing Cal. Stats. 1957, 1st Ex. Sess. 1956, ch. 52, §7, pp. 425-27). In 1967, the Legislature consolidated the Water Rights Board with the State Water Quality Control Board to create the State Water Resources Control Board. Id. at 695 (citing Cal. Stats. 1967, ch. 284). 11 1 is needed over that which is available under the existing right 2 to meet the beneficial use requirements of the project. ).4 The 3 SWRCB disclaims authority to directly adjudicate or otherwise 4 resolve disputes over the validity, nature, or extent of pre-1914 5 water rights. See SWRCB, Information Pertaining to Water Rights 6 in California - 1990 at p.8.5 Instead, the parties may file suit 7 in a court of competent jurisdiction to determine the extent and 8 nature of such water rights. The court may, in turn, refer the 9 matter to the Board, as referee, for investigation. 10 §§ 2000, 2001. See CWC Alternatively, one or more claimants to water of 11 any stream system may request the determination of the rights 12 of the various claimants to the water of that stream system. 13 CWC § 2525. If the facts and conditions are such that the 14 public interest and necessity will be served by a determination 15 of the water rights involved, the Board may enter an order 16 granting the petition and make proper arrangements to proceed 17 with the determination. Id. 18 19 C. The 1956 Cooperative Studies and Related Analyses. 20 On July 7, 1952, Reclamation, the State of California, and 21 the Sacramento Valley Water Users Committee entered into a 22 Memorandum of Understanding Relating to a General Approach to 23 24 25 26 27 28 4 After the passage of the California Water Commission Act in 1914, any appropriation of water must comply with the provisions of Division 2, Part 2 of the California Water Code. 5 Available at http://www.waterrights.ca.gov/Forms/app_geninfo.pdf (last visited, April 6, 2009). 12 1 Negotiations for Settlement of Water Diversions from the 2 Sacramento River and Sacramento-San Joaquin Delta with the 3 Objective of Avoiding Litigation. SC 03629-32 ( 1952 MOU ). 4 The signatories agreed that: 5 6 7 8 9 10 11 12 13 14 The Federal Government acting through the Bureau of Reclamation is applying for certain permits to appropriate un-appropriated water from the Sacramento River, in aid of the Central Valley Project. The water users along the Sacramento River, hereinafter referred to as the water users , who are for the purposes hereof acting through the Sacramento Valley Water Users Committee, have protested the applications of the Federal Government for such permits and seek various conditions and limitations. The State Engineer, before whom the applications are pending, encourages satisfactory agreements between applications and protestants providing for withdrawal of protests. The Federal Government has also indicated that an authoritative determination of the validity and extent of rights to the use of water of the Sacramento River is necessary, and the parties hereto are in accord that this determination should be made by agreement, if possible, rather than by litigation. 15 16 17 18 19 20 21 The water users and the Federal Government are accordingly undertaking to negotiate an adjustment of the various matters just referred to without litigation and with a minimum of formal proceedings, for their mutual benefit. Such adjustment would eliminate the delay, expense and uncertainty attendant upon complex and difficult lawsuits, with a view of apportioning the water of the Sacramento River in an equitable manner so that the Central Valley Project can function in the manner intended without injury to the water users. The state of California will participate and assist in these negotiations through its State Engineer and its Attorney General. 22 *** 23 24 [The] general approach [suggested by this memorandum] shall not in any way prejudice any water rights claimed by any of the parties... 25 SC 03629-30 (emphasis added). 26 The unambiguous intent of the MOU is to reach, by agreement 27 and compromise, an authoritative determination of the validity 28 13 1 and extent of rights to the use of water of the Sacramento 2 River, as between Sacramento River water users and the United 3 States. To do this, the parties entered into a cooperative 4 study program in an effort to reach an agreement on existing 5 water rights along the Sacramento River and in the Delta. 6 at 28. D-990 The results of the 1956 studies were published in the 7 Report on 1956 Cooperative Study Program, which reaffirmed that 8 the studies were intended to produce information that would be 9 used to further negotiations aimed at reaching an agreement on 10 water rights along the Sacramento River and in the Delta. 11 00065. SC The Report explained that the assumptions utilized in the 12 studies were solely for the purpose of evaluating the effects of 13 [those] assumptions upon water right yields, deficiencies, and 14 supplemental water requirements, and no implications as to the 15 legal status of such assumed rights are intended. SC 00066 16 (emphasis added). 17 Using the results of the cooperative study program, the 18 parties presented separate studies to the Board to support an 19 equitable basis for determining the yields of existing rights 20 along the Sacramento River and in the Delta. 21 (emphasis added). D-990 at 31 Study C-2BR was prepared by Reclamation and 22 Study C-650D was submitted by the Sacramento River and Delta 23 Water Association. Id. A description of the C-650 Study 24 published by the California Department of Water Resources ( DWR ) 25 in 1959 reiterates that the purpose of the then-ongoing 26 negotiations between Sacramento River water users and the Bureau 27 is to find a basis for agreement upon the respective water 28 rights of these parties and upon a suitable arrangement for the 14 1 water users to obtain a supplemental water supply from the 2 Central Valley Project. SC 03451 (emphasis added). 3 4 D. Van Camp s Summary of the Evidence Underlying the 1956 Cooperative Study Program and Related Investigations. 5 GCID submits the declaration of Marc Van Camp, a registered 6 civil engineer with extensive experience in the fields of 7 hydrology, hydraulics, irrigation, drainage, groundwater, water 8 supply, water rights, and related subjects. Doc. 775. His 9 declaration summarizes and explains voluminous technical 10 information pertaining to the SRS Contractors relevant 11 underlying water rights. Id. Much of Van Camp s information is 12 from the 1956 Cooperative Studies, C-2BR, and C-650. Id. at ¶9. 13 Van Camp presents a series of tables to summarize the nature 14 and extent of the senior water rights held by each of the SRS 15 Contractors. Exhibits C-1 through C-28 summarize those senior 16 rights considered and used to arrive at the original contract 17 quantities. Id. at ¶11. Exhibits D-1 through D-28 are plots for 18 each of the SRS Contractors, showing the monthly contract 19 quantities ultimately provided for within each of the original 20 SRS Contracts, together with the water rights data from C-1 21 through C-28. Id. at ¶12. Exhibit E depicts the combined 22 monthly water rights quantities and the combined monthly contract 23 quantities of 27 of the 28 challenged SRS Contracts, 24 distinguishing between the various types of underlying and 25 contractual water rights involved. Id. at ¶13.6 26 27 28 6 The City of Redding is treated separately, because the City diverts water year-round for municipal, industrial, and 15 1 According to Van Camp s uncontradicted review of the 2 information contained in these Studies, the underlying water 3 rights held by the SRS Contractors included pre-1914 4 appropriative water rights, post-1914 appropriative rights, 5 riparian rights, and a small volume of other types of water 6 rights. Most of the underlying water rights included only a 7 maximum rate of diversion and a season of diversion. None of the 8 underlying water rights included any monthly diversion limits, 9 other than the maximum rate of diversion.7 10 Van Camp opined that in all but six cases, the monthly 11 contract quantities eventually agreed to in the original set of 12 SRS Contracts were less than the documented underlying water 13 rights.8 Id. at ¶41. The sum of the monthly contract quantities 14 that exceed the face value of the underlying water rights 15 accounts for approximately one percent of the total contract 16 quantity for the 28 contractors at issue in this case. Id. Van 17 Camp opines that some of these exceedences are attributable to 18 small differences in assumptions used to estimate monthly demand, 19 20 21 22 23 24 25 26 27 28 domestic purposes. Id. 7 It is undisputed that Reclamation s operation of the CVP depended on placing limits on the SRS Contractors monthly diversions. 8 Van Camp opined, specifically, that in all but six cases, the monthly contract quantities agreed to are less than what was authorized for diversion under the documented water rights that were considered and used to arrive at the contract quantities provided for within the original SRS Contracts. Van Camp Decl. at ¶41. The phrase authorized for diversion under the documented water rights is, at least in part, an improper legal conclusion and is disregarded, as the Board, Bureau, and SRS Contractors did not reach such an agreement. 16 1 rounding, and the failure to identify all other water rights 2 concerned. Id. at ¶56. Van Camp explains that other exceptions, 3 such as the fact that Anderson Cottonwood Irrigation District s 4 ( ACID ) pre-1914 claim is less than the monthly contract 5 quantities provided for in their contract, was the result of 6 Reclamation and ACID s consideration of unusually high 7 conveyance losses, porous soils, and projected crop patters 8 within ACID.... Id. at ¶50. 9 10 E. D-990. 11 In response to the United States applications, the Board 12 held more than 75 days of hearings over the course of more than a 13 year. D-990 at 6-7. The Board first rejected the United States 14 position that it should be issued an unconditional permit to 15 appropriate water for the operation of the CVP, reasoning: 16 17 18 19 20 21 [This] demand ... is irreconcilable with the provisions of Section 8 of the Reclamation Act of 1902 that federal reclamation law is not intended to interfere with state laws relating to the control, appropriation, use, or distribution of water used in irrigation ... and the Secretary of the Interior, in carrying out the provisions of this act shall proceed in conformity with such laws .... There is no such thing as an unconditional water right under the law of California, or of any other western state for that matter. 22 Id. at 25. 23 D-990 recognized that [t]he final report acknowledged [that 24 the] assumptions [made in the studies], particularly with respect 25 to water rights, may differ considerably from the rights as may 26 be determined by a court of law. 27 Id. at 31. The Board also examined the data to determine the maximum 28 quantity that the Bureau should be permitted to divert to storage 17 1 during any given year: 2 3 4 5 6 7 8 9 In fixing the rates of direct diversion to be allowed, the Board is inclined to greater liberality than usual because of the magnitude of the Project and the complexities involved in determining at this time the direct diversion as distinguished from rediversions of stored water. However, notwithstanding these considerations, we would require greater particularity in proof of direct diversion requirements were we not assured that no prejudice to others will result from failure of applicant to produce such proof. This assurance is provided by conditions which will be imposed in the permits subjecting exports of water from the Delta to use within the Sacramento River Basin and Delta so that there can be no interference with future development of these areas. 10 Id. at 40. 11 12 13 14 15 16 17 18 19 20 21 The Board concluded: [T]he public interest requires that water originating in the Sacramento Valley Basin be made available for use within the Basin and the Sacramento-San Joaquin Delta before it is exported to more distant areas, and the permits granted herein will so provide. However, the Board will limit the period of time in which such preference may be exercised. This limitation is necessary in order to best conserve in the public interest the water to be appropriated. The Board considers that, in view of the length of time the Project has been in operation, a period of approximately three years is a reasonable time in which the users within the watershed who are currently using water from [the] Sacramento River or the Delta may have a preferred right to Project water. Accordingly, the permits will provide that until March 1, 1964, requests for water service contracts from such users within the Sacramento Valley and Delta shall be preferred over requests from users outside the watershed. 22 23 24 25 26 The Board concurs with Counsel for the Association that a period of approximately ten years is a reasonable length of time in which users within the watershed who are not presently diverting water from the Sacramento River or Delta may consummate contracts for Project water [citation]. Accordingly, the permits will provide that until March 1, 1971, requests for water service contracts from such users shall be preferred over requests from users outside the watershed. 27 28 Users within the watershed who do not presently hold appropriative rights but who wish to initiate such 18 1 2 3 rights by application to this Board should also be afforded preference. Accordingly the permits granted for use outside the watershed shall be subject to rights initiated by applications for use within the watershed. 4 Id. at 72-73. 5 The Board directly encouraged the United States to reach a 6 settlement agreement with the Sacramento River water users who 7 held existing rights in the Sacramento River: 8 9 10 11 12 13 14 Throughout these proceedings, the Bureau's representatives have consistently affirmed their policy to recognize and protect all water rights on the Sacramento River and in the Delta existing under State law at the times these applications were filed, including riparian, appropriative and others. Unfortunately, these rights have never been comprehensively defined. It is imperative, therefore, that the holders of existing rights and the United States reach agreement concerning these rights and the supplemental water required to provide the holders with a firm and adequate water supply, if a lengthy and extremely costly adjudication of the waters of the Sacramento River and its tributaries is to be avoided. 15 Id. at 75 (emphasis added). 16 The Board found: 17 18 19 20 21 22 23 24 25 [U]nappropriated water exists in the Sacramento river and in the Delta at times and in sufficient amounts to justify approval of [the] Applications.... [T]he uses proposed are beneficial; that such waters in general, but with certain exceptions and subject to certain conditions, may be taken and used as proposed without interference with the exercise of prior rights; and that the applications should be approved and permits issued pursuant thereto, subject to the usual terms and conditions and subject to those additional terms and conditions indicated in ... this decision for the protection of prior rights and in the public interest. The Board finds that as so conditioned the developments proposed in these applications will best develop, conserve and utilize in the public interest the water sought to be appropriated. 26 Id. at 79. The position of the United States is unequivocal: to 27 recognize and protect existing Sacramento River water rights 28 already held by SRS users at the time (1952) the Bureau s 19 1 applications were filed. 2 The parties did so by agreement. On February 9, 1961, the board granted the Bureau s 3 applications, subject to, among others, the following relevant 4 conditions: 5 20. The quantity of water which may be diverted under permits issued pursuant to Applications 5625, 5626, 9364 and 9365 shall remain subject to depletion of stream flow above Shasta Dam by the exercise of lawful rights to the use of water for the purpose of development of the counties in which such water originates, whether such rights have been heretofore or may be hereafter initiated or acquired; such depletion shall not exceed in the aggregate 4,500,000 acre-feet of water in any consecutive 10-year period and not to exceed a maximum depletion in any one year in excess of 700,000 acre-feet. 6 7 8 9 10 11 21. In conformity with Water Code Section 10505, permits issued pursuant to Applications 9363, 9366, 9367 and 9368 shall be subject to any and all rights of any county in which the water sought to be appropriated originates to the extent that any such water may be necessary for the development of such county. 12 13 14 15 22. Direct diversion and storage of water under permits issued pursuant to Applications 5626, 9363, 9364, 9366, 9367 and 9368 for use beyond the Sacramento-San Joaquin Delta or outside the watershed of Sacramento River Basin shall be subject to rights initiated by applications for use within said watershed and Delta regardless of the date of filing said applications. 16 17 18 19 23. The export of stored water under permits issued pursuant to Applications 5626, 9363 and 9364 outside the watershed of Sacramento River Basin or beyond the Sacramento-San Joaquin Delta shall be subject to the reasonable beneficial use of said stored water within said watershed and Delta, both present and prospective, provided, however, that agreements for the use of said stored water are entered into with the United States prior to March 1, 1964, by parties currently diverting water from Sacramento River and/or Sacramento-San Joaquin Delta and prior to March 1, 1971, by parties not currently using water from Sacramento River and/or Sacramento-San Joaquin Delta. 20 21 22 23 24 25 26 Id. at 84-86. The parties place particular emphasis on Condition 27 23. 28 20 1 F. 1951 House Interior and Insular Affairs Committee Report. 2 Congress also urged the Bureau to reach an agreement with 3 the SRS Contractors. In 1951, the House Interior and Insular 4 Affairs Committee issued a report recognizing the growing 5 possibility of conflict between existing Sacramento River water 6 users and the nascent CVP, urging the Bureau to avoid litigation. 7 See Engle, CVP Documents, Part I, S. Res. 1, 84th Cong. (2d 8 Sess.), H.R. Res. 416 at 675-783 (1956). In this report, 9 Congress expressed its concern about the possibility that the CVP 10 could become involved in [a] monstrous lawsuit ... that would 11 embroil the [CVP] in litigation for decades. Id. at 681. 12 On the one hand, the Committee nowhere conceded that the 13 CVP s rights were subordinate to any other existing rights on the 14 Sacramento River. The Report provides that, should the matter be 15 taken to court, the Department of Justice would undoubtedly 16 represent the interest of the Federal Government and assert every 17 possible claim to the water.... Id. However, the Report 18 simultaneously acknowledged that any dispute over the relative 19 priority of the Bureau s water rights would be a heated one, as 20 the Bureau promised that no water which is needed in the 21 Sacramento Valley will be sent out of it. Id. at 678. 22 Moreover, instead of firm water rights necessary for the 23 operation of the [CVP] the Bureau ... had in effect merely four 24 pieces of paper which the State of California ... in effect said 25 the Bureau should take to court to find out if it has any water 26 rights. Id. at 682. 27 28 21 1 G. Negotiation of the SRS Contracts. 2 The proposed contracts were developed and forwarded to 3 interested Sacramento River water users in 1962. A February 15, 4 1963 Memorandum Report on Sacramento River Water Diversions, 5 developed by a specially appointed panel, made recommendations to 6 the Secretary of the Interior on the negotiations. The Report 7 recommended, among other things, that the water studies C-2BR 8 and C-650-B, which were the principal bases for derivation of 9 schedule A quantities applicable to diverters above the city of 10 Sacramento, continue to be the principal bases for determining 11 each diverter s entitlement to the so-called base supply of 12 Sacramento River water.... SC 03685. However, the possibility 13 was left open that adjustments [could] be made in individual 14 cases where there is specific and convincing justification for 15 departure. Id. 16 17 H. The SRS Contracts. 18 The United States reached agreement with the Settlement 19 Contractors and executed most of the original SRS Contracts in SAR 004147.9 20 1964. The SRS Contracts fixed the specific volume 21 of water and place of use for each SRS Contractor for 40 years 22 and during any renewals of those contracts, all subject to the 23 condition subsequent that if a general stream adjudication or 24 other proceeding to judicially and/or administratively determine 25 Sacramento River System water rights eventuates, the parties are 26 27 28 9 All SAR References are to the Supplemental Administrative Record submitted by the Bureau of Reclamation in this case. 22 1 no longer bound by the contract settlements, and all parties are 2 then free to assert the full extent of their claimed SRS water 3 rights. SC 04447-05760. 4 5 I. Decision 1641. 6 In Decision 1641 ( D-1641 ), issued December 1999 and 7 revised March 200010, the SWRCB modified the United States 8 permits to operate the CVP to implement flow objectives for the 9 Sacramento San-Joaquin Bay-Delta Estuary, in response to 10 petitions to change points of diversion of the CVP and SWP in the 11 Southern Delta, and to address a petition to change places and 12 purposes of use for the CVP. Among other things, D-1641 amended 13 the United States permits to operate the CVP to include the 14 following conditions concerning endangered species: 15 This permit does not authorize any act which results in the taking of a threatened or endangered species or any act which is now prohibited, or becomes prohibited in the future, under either the California Endangered Species Act (Fish and Game Code sections 2050 to 2097) or the Federal Endangered Species Act (16 U.S.C.A sections 1531 to 1544). If a take will result from any act authorized under this water right, the permittee/licensee shall obtain authorization for an incidental take prior to construction or operation of the project. Permittee/Licensee shall be responsible for meeting all requirements of the applicable Endangered Species Act for the project authorized under this permit/license. 16 17 18 19 20 21 22 D-1641 at 148. This does not diminish the SRS Contractors 23 rights. 24 25 26 27 28 10 Available at: http://www.waterrights.ca.gov/hearings/decisions/WRD1641.pdf (last visited April 9, 2009). 23 1 J. CVPIA. 2 Effective October 31, 1992, Congress enacted the Central 3 Valley Project Improvement Act ( CVPIA ), Pub. L. No. 102-575, 4 106 Stat. 4600 (1992), mandating changes in management of the 5 CVP. Among other provisions, § 3406(b) provides that: The Secretary, immediately upon the enactment of this title, shall operate the Central Valley Project to meet all obligations under State and Federal law, including but not limited to the Federal Endangered Species Act, 16 U.S.C. § 1531, et seq., and all decisions of the California State Water Resources Control Board establishing conditions on applicable licenses and permits for the project. 6 7 8 9 10 This provision does not elevate or subordinate any of the 11 specified laws or decisions of the SWRCB over any other. 12 respect to the renewal of contracts, § 3404(c) provides: 13 14 15 16 17 18 19 20 21 22 23 With Renewal of Existing Long-Term Contracts -Notwithstanding the provisions of the Act of July 2, 1956 (70 Stat. 483), the Secretary shall, upon request, renew any existing long-term repayment or water service contract for the delivery of water from the Central Valley Project for a period of twenty-five years and may renew such contracts for successive periods of up to 25 years each. *** (2) Upon renewal of any long-term repayment or water service contract providing for the delivery of water from the Central Valley Project, the Secretary shall incorporate all requirements imposed by existing law, including provisions of this title, within such renewed contracts. The Secretary shall also administer all existing, new, and renewed contracts in conformance with the requirements and goals of this title. 24 // 25 // 26 // 27 // 28 // 24 III. 1 2 A. Threshold Issues. 1. 3 4 5 ANALYSIS Federal Defendants Argument that Summary Judgment Should be Granted on Other Grounds Raised in Their Summary Judgment Briefs. Federal Defendants argue that they are entitled to summary 6 judgment for all of the reasons set forth in their original 7 summary judgment motion, Doc. 679. The November 19, 2008 8 Memorandum decision rejected these other grounds upon which 9 Federal Defendants sought summary judgment, finding them without 10 merit. See Doc. 761. There is no basis to reconsider those 11 decisions. 12 2. 13 14 Proceedings Not Intended to Adjudicate Any Party s Water Rights. Federal defendants renew their concern that this proceeding 15 cannot adjudicate the extent of the SRS Contractors historical 16 water rights. 17 jurisdiction over these proceedings. 18 proceeding is the applicability of Home Builders to the facts and 19 circumstances of the existing record. Such an adjudication is beyond the court s The sole focus of this 20 21 3. 22 23 Preliminary Nature of Previous Discussions Regarding Home Builders. To the extent any party has interpreted the discussion in 24 Part VI.D.1. of the November 19, 2008 Memorandum Decision to be a 25 final decision, it was not so intended, as explained in the 26 response to Plaintiffs request for certification of an 27 interlocutory appeal of the Home Builders portion of that 28 decision. See Doc. 811, filed February 12, 2009. 25 4. 1 2 The ESA and CVPIA Apply to the SRS Contractors. The November 19, 2008 Memorandum Decision found: The CVPIA specifically exempts all Settlement Contracts from the various new requirements imposed by that law. Representative Fazio noted that such special treatment is appropriate given the seniority of their water rights. 138 Cong. Rec. H 11,493, 11,515-516 (Oct. 5, 1992). These contractors have a prior right to the water they receive. They were entitled to this water before the project was constructed. Id. 3 4 5 6 7 Doc. 761 at 64. 8 certain sections of the CVPIA apply only to water service and 9 repayment contractors, e.g. § 3404(c) (requiring renewal of all 10 existing long-term repayment or water service contract[s] for 11 periods of up to 25 years), other provisions explicitly include 12 water rights settlement contracts, as distinguished from water 13 service or repayment contracts, e.g., § 3405 (permitting all 14 individuals ... who receive Central Valley Project water under 15 water service or repayment contracts, water rights settlement 16 contracts, or exchange contracts to transfer water, subject to 17 certain conditions, to any other California water user or water 18 agency ). This statement needs clarification. While 19 The November 19, 2008 Decision also found that any truly 20 senior rights held by the SRS Contractors are beyond the reach 21 of the ESA. 22 Builders, section 7(a)(2) does not apply to the Bureau s water 23 allocation actions and the SRS Contractors diversion of their 24 senior rights, it is undisputed that other sections of the ESA 25 may apply, including section 9, 16 U.S.C. § 1539, which prohibits This statement is overbroad. 26 27 28 26 Even if, under Home 11 1 the take of an endangered species by any person without a 2 permit. See United States v. Glenn-Colusa Irr. Dist., 788 F. 3 Supp. 1126 (E.D. Cal. 1992). 4 5. 5 6 Evidentiary Matters. A number of evidentiary issues are pending. First, 7 Plaintiffs filed a motion to strike portions of the Van Camp 8 declaration. Doc. 821, filed March 2, 2009. 9 motion to strike. GCID opposed the Doc. 823, filed Mar. 6, 2009. During the 10 March 13, 2009 hearing on the Home Builders issue, the court 11 overruled all of Plaintiffs objections to the Van Camp 12 declaration, except that Mr. Van Camp s use of the term senior 13 in connection with this analysis of water rights is an 14 inadmissible legal conclusion. Any legal conclusions advanced by 15 the Van Camp declaration are inadmissible as irrelevant. 16 Second, the SRS Contractors object to portions of 17 Plaintiffs Request for Judicial Notice. 18 9, 2009. Doc. 825, filed March These objections are resolved in a concurrently-filed 19 memorandum decision, incorporated by this reference. 20 The SRS Contractors request the court take judicial notice 21 of a number of documents, the existence of which are judicially 22 noticeable as publically-filed documents in court proceedings. 23 Doc. 774. A large number of these documents relate to the 1956 24 Cooperative Study Program and related investigations and the 25 underlying water rights considered in those investigations. See 26 27 28 11 The ESA defines take to mean: to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct. 16 U.S.C. § 1532(19). 27 1 id. In their Home Builders brief, Plaintiffs object to the vast 2 majority of this evidence as beyond the scope of these 3 proceedings. Doc. 820-2 at 25. Specifically, Plaintiffs argue 4 that this evidence fails to document the kind of finite, 5 enforceable water rights, evidence of which the district court 6 called for at the start of these proceedings. Id. Plaintiffs 7 objection goes to the weight, not the admissibility of this 8 evidence. Plaintiffs objection is OVERRULED; the SRS 9 Contractors Request for Judicial Notice is GRANTED. The 10 documents are admissible only for the limited purpose of 11 ascertaining whether the SRS Contractors hold definite and 12 certain senior water rights. 13 14 15 16 B. Does Section 7 of the ESA Apply to the Bureau s Implementation and/or Execution of the SRS Contracts? 1. Legal Framework. Section 7(a)(2) of the Endangered Species Act ( ESA ), which 17 requires federal agencies to consult with one of the federal 18 wildlife agencies to determine whether their actions will affect 19 threatened or endangered species or their habitat, only applies 20 to those agency actions in which there is discretionary federal 21 involvement or control. 22 a general rule, the Bureau retains considerable discretion to 23 choos[e] what specific actions to take in order to implement 24 the general goals of Reclamation Law. 25 Nat l Marine Fisheries Serv., 524 F.3d 917, 929 (9th Cir. 2008) 26 ( NWF II ). 27 Bureau s discretion over the delivery of water to and contracting Home Builders, 127 S. Ct. at 2534. As Nat l Wildlife Fed n v. The parties dispute whether and to what extent the 28 28 1 with the SRS Contractors has been constrained either by law or 2 contract. 3 Home Builders, 127 S. Ct. at 2524, addressed the transfer of 4 permitting authority under the Clean Water Act s ( CWA ) National 5 Pollution Discharge Elimination System ( NPDES ) from the 6 Environmental Protection Agency ( EPA ) to the State of Arizona 7 pursuant to CWA § 402(b). Under section 402(b), the EPA shall 8 approve a State s request to assume the permitting program 9 unless [it] determines that adequate authority does not exist 10 to ensure that nine specific criteria set forth in the statute 11 are satisfied. 12 approved. 13 If the criteria are met, the transfer must be Id. at 2525. At the same time, § 7 of the ESA requires federal agencies 14 to consult with either FWS or NMFS to insure that any action 15 authorized, funded, or carried out by such agency ... is not 16 likely to jeopardize endangered or threatened species or their 17 habitats. Id. (quoting ESA §7). Home Builders recognized that 18 [a]lthough a later enacted statute (such as the ESA) can 19 sometimes operate to amend or even repeal an earlier statutory 20 provision (such as the CWA), repeals by implication are not 21 favored and will not be presumed unless the intention of the 22 legislature to repeal is clear and manifest. Id. at 2532. The 23 Supreme Court reasoned that requiring the EPA to comply with ESA 24 § 7 when approving a transfer application would effectively 25 repeal § 402(b) s statutory mandate by engrafting a tenth 26 criterion onto the CWA. 27 28 Id. Section 402(b) of the CWA commands that the EPA shall issue a permit whenever all nine exclusive statutory prerequisites are met. Thus, § 402(b) does not just set 29 forth minimum requirements for the transfer of permitting authority; it affirmatively mandates that the transfer shall be approved if the specified criteria are met. The provision operates as a ceiling as well as a floor. By adding an additional criterion, the Ninth Circuit's construction of § 7(a)(2) raises that floor and alters § 402(b) s statutory command. 1 2 3 4 5 Id. at 2532-33 (emphasis in original). 6 Home Builders approved a joint NMFS/FWS regulation that 7 provided: Section 7 and the requirements of this part apply to 8 all actions in which there is discretionary Federal involvement 9 or control. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 50 C.F.R. § 402.03. Pursuant to this regulation, § 7(a)(2) would not be read as impliedly repealing nondiscretionary statutory mandates, even when they might result in some agency action. Rather, the ESA s requirements would come into play only when an action results from the exercise of agency discretion. This interpretation harmonizes the statutes by giving effect to the ESA s no-jeopardy mandate whenever an agency has discretion to do so, but not when the agency is forbidden from considering such extrastatutory factors. *** We conclude that this interpretation is reasonable in light of the statute s text and the overall statutory scheme, and that it is therefore entitled to deference under Chevron. Section 7(a)(2) requires that an agency insure that the actions it authorizes, funds, or carries out are not likely to jeopardize listed species or their habitats. To insure something-as the court below recognized-means [t]o make certain, to secure, to guarantee (some thing, event, etc.). 420 F.3d, at 963 (quoting 7 Oxford English Dictionary 1059 (2d ed.1989)). The regulation s focus on discretionary actions accords with the commonsense conclusion that, when an agency is required to do something by statute, it simply lacks the power to insure that such action will not jeopardize endangered species. Id. at 2533-35 (emphasis in original). Home Builders reasoned that [a]gency discretion presumes 26 that an agency can exercise judgment in connection with a 27 particular action, id. at 2535, and that while the EPA might 28 30 1 exercise some judgment in determining whether to approve a 2 transfer application under CWA § 402(b), the statute clearly 3 does not grant it the discretion to add another entirely separate 12 4 prerequisite to [the listed criteria,] id. at 2537. 5 12 6 7 8 9 10 11 12 13 14 15 16 17 18 19 In discussing why its reasoning was supported by its decision in Department of Transportation v. Public Citizen, 541 U.S. 752 (2004), Home Builders mentioned California v. United States, 438 U.S. 645 (1978). Public Citizen concerned safety regulations promulgated by the Federal Motor Carrier Safety Administration ( FMCSA ) that had the effect of triggering a Presidential directive allowing Mexican trucks to ply their trade on United States roads: [In Public Citizen,] [t]he Court held that the National Environmental Policy Act (NEPA) did not require the agency to assess the environmental effects of allowing the trucks entry because the legally relevant cause of the entry of the Mexican trucks is not FMCSA s action, but instead the actions of the President in lifting the moratorium and those of Congress in granting the President this authority while simultaneously limiting FMCSA s discretion. Id., at 769, 124 S.Ct. 2204 (emphasis in original). The Court concluded that where an agency has no ability to prevent a certain effect due to its limited statutory authority over the relevant actions, the agency cannot be considered a legally relevant cause of the effect. Id., at 770, 124 S.Ct. 2204. 20 21 22 23 24 25 26 27 28 We do not suggest that Public Citizen controls the outcome here; § 7(a)(2), unlike NEPA, imposes a substantive (and not just a procedural) statutory requirement, and these cases involve agency action more directly related to environmental concerns than the FMCSA s truck safety regulations. But the basic principle announced in Public Citizen-that an agency cannot be considered the legal cause of an action that it has no statutory discretion not to take-supports the reasonableness of the FWS's interpretation of § 7(a)(2) as reaching only discretionary agency actions. See also California v. United States, 438 U.S. 645, 668, n. 21 (1978) (holding 31 1 Where a statute articulates broad goals or leaves sufficient 2 room for an agency to maneuver, the consultation requirements 3 apply. A recent example is Home Builders application to the 4 operation of Federal Columbia River Power System ( FCRPS ) dams 5 and related facilities in NWF II, 524 F.3d at 928. NWF II held 6 the federal statutes authorizing operation of the FCRPS merely 7 set forth broad goals for the agency to follow when operating 8 the System, leaving the agency considerable discretion to 9 balance its mandates with the requirements of the ESA. 10 928-929. Id. at Similarly, Natural Resources Defense Council v. 11 Houston, 146 F.3d 1118 (9th Cir. 1998), a pre-Home Builders case, 12 examined a statute that directed Reclamation to give contracting 13 districts a first right...to a stated share or quantity of the 14 project s available water supply.... (quoting 43 U.S.C. § 15 485h-l(4)). Although Congress directed Reclamation to give the 16 CVP Friant Unit water service contractors the first right to 17 water, the statute qualified that obligation by indicating that 18 only available water must be provided, leaving it to 19 Reclamation to determine whether water needed for ESA purposes 20 21 22 23 24 25 26 27 28 that a statutory requirement that federal operating agencies conform to state water usage rules applied only to the extent that it was not inconsistent with other congressional directives ). Id. at 2535 (italics in original, underlining added). By this reference, the Supreme Court suggests there are parallels between Section 8 of the Reclamation Act, 43 U.S.C. §§ 372, 383, and the ESA, insofar as neither statute overrides other congressional directives. Home Builders does not directly address whether and to what extent the ESA takes priority over the state laws made applicable to the Bureau as a result of Section 8 of the Reclamation Act. 32 1 was [un]available for delivery. 2 Id. at 1126. In contrast, where a prior agreement or enforceable permit 3 or license fails to retain for the federal agency the right to 4 take action on behalf of a now-listed species, consultation 5 requirements may not apply. In Sierra Club v. Babbitt, 65 F.3d 6 1502 (9th Cir. 1995), another pre-Home Builders case, a federal 7 agency entered into a reciprocal right-of-way agreement with a 8 landowner prior to passage of the ESA. Under the agreement, the 9 agency only reserved the right to object to projects built in the 10 right-of-way in limited circumstances. Id. at 1505-06. Because 11 the agency did not retain discretion to implement measures that 12 inure to the benefit of ... protected species, it was not 13 required to reinitiate consultation when the spotted owl was 14 listed. Id. at 1509.13 An analogous result was reached in 15 Environmental Protection Information Center v. Simpson Timber 16 Co., 255 F.3d 1073, 1079-82 (9th Cir. 2001)( EPIC ), where the 17 Fish and Wildlife Service ( FWS ) was not required to reinitiate 18 consultation when two species found on affected land were listed 19 as threatened after FWS issued an incidental take permit to the 20 landowner. Although FWS retained some discretion over activities 21 pursuant to the take permit, it did not retain discretionary 22 control to make new requirements to protect species that 23 subsequently might be listed as endangered or threatened. Id. 24 25 26 27 28 13 Sierra Club cited the water service contracts at issue in O Neill v. United States, 50 F.3d 677, 680-81 (9th Cir. 1995), as examples of contractual agreements to which the procedural requirements of section 7(a)(2) do apply because under those contracts the United States must determine each year the quantity of water to supply. 65 F.3d at 1508. 33 1 at 1081. 2 An unambiguous limitation on agency discretion in the 3 context of contract renewal exists under the Federal Power Act 4 ( FPA ), which authorizes the Federal Energy Regulatory 5 Commission ( FERC ) to issue long term licenses to operators of 6 hydro-electric projects for periods not to exceed fifty years. 7 16 U.S.C. §§ 797, 799. When any such licenses come up for 8 renewal, the applicant must begin a lengthy and complex 9 relicensing process. 18 C.F.R. § 16.6. If FERC does not issue a 10 new license before the expiration of the existing license, FERC 11 is required to issue annual licenses to the then licensee under 12 the terms and conditions of the original license until ... a new 13 license is issued, 16 U.S.C. § 808(a)(1)(emphasis added), a 14 clear example of mandatory, albeit temporary, renewal on terms 15 and conditions of an original license. 16 Platte River Whooping Crane Critical Habitat Maintenance 17 Trust v. FERC, 876 F.2d 109 (D.C. Cir. 1989) ( Platte I ), and a 18 subsequent decision in the same case, 962 F.2d 27 (D.C. Cir. 19 1992)( Platte II ), concerned the issuance of annual FERC 20 licences to two licensees. An environmental organization sued, 21 arguing that FERC had an obligation to consider inserting 22 conditions in the annual licenses that would benefit the Whooping 23 Crane. Id. at 110-11. The D.C. Circuit upheld FERC s 24 interpretation of the FPA as empowering FERC to amend an annual 25 license, for example by adding conditions for the protection of 26 fish and wildlife, only if the existing license contains such 27 reservation of authority or the licensee agrees to such 28 additional conditions. Id. One of the disputed licenses 34 1 included such a reservation of authority; the other did not. 2 at 112. Id. Despite the reservation of authority in one of the 3 licenses, FERC refused to consider inserting conditions for the 4 protection fo the Whooping Crane into either license. 5 114. See id. at FERC abused its discretion by refusing even to explore the 6 need for protective conditions. Platte II, 962 F.2d at 30 7 (citing Platte I, 876 F.2d at 119). The D.C. Circuit suggested 8 that [FERC] could seek [the] cooperation [of the licensee whose 9 original license did not contain a reservation of rights] in 10 implementing any conditions deemed necessary, but agreed that 11 FERC only possessed authority to impose conditions unilaterally 12 on the licensee whose original license contained a reservation of 13 the authority to do so. Id. But see Turtle Island Restoration 14 Network v. Nat l Marine Fisheries Serv., 340 F.3d 969, 977 (9th 15 Cir. 2003)(where wildlife agency issues permits under a statute 16 designed to promote compliance with international conservation 17 treaties, the agency retains substantial discretion to condition 18 permits to inure to the benefit of listed species ). 19 An agency s discretion may also be constrained by 20 previously-concluded management decisions subject to the 21 consultation process. In a recent (post-Home Builders), 22 unpublished decision, an Arizona district court examined water 23 releases for power generation on the Colorado River. Grand 24 Canyon Trust v. United States Bureau of Reclamation, 2008 U.S. 25 Dist. LEXIS 83853 (D. Ariz. Sept. 26, 2008). An environmental 26 organization claimed that Reclamation s practice of allowing non27 seasonal fluctuating releases of water into the Colorado River to 28 generate electricity jeopardized the continued existence and 35 1 habitat of an endangered fish. After close examination of the 2 system s operational history, the district court concluded that 3 the release practices had been approved by a series of decisions 4 in 1996 and 1997, which followed full, lawful consultation 5 processes. The plaintiff s contention that Reclamation should be 6 required to complete consultation every year when it prepares its 7 Annual Operating Plan ( AOP ) for a number of reservoirs on the 8 Colorado was rejected. The court held the agency s action was 9 legally foreordained by the 1996 and 1997 decisions, and that 10 Reclamation lacked discretion to modify the regime to benefit the 11 species. Id. at *47 (citing Defenders of Wildlife v. United 12 States EPA, 420 F.3d 946, 967 (9th Cir. 2005)); but see Pacific 13 Rivers Council v. Thomas, 30 F.3d 1050 (9th Cir. 1994) (where an 14 agency s management planning document specifically provides that 15 every plan, permit, contract, or any other document pertaining 16 to the use of the [resource] must be consistent with the 17 management plan, the management plan constitutes continuing 18 agency action because the agency retains discretion to 19 constantly control forest management projects). 20 Defenders of Wildlife v. Norton, 257 F. Supp. 2d 53, 57 21 (D.D.C. 2003), concerned Reclamation s management of the lower 22 Colorado River and the agency s decision that it was not required 23 to pursue formal consultation as to the impacts of Colorado River 24 operations on a species that resided in the Colorado River Delta, 25 located across the border in Mexico. The environmental 26 plaintiffs argued that the consultation requirement should apply 27 because Reclamation retained some discretionary ability to 28 handle river regulation, improvement of navigation, and flood 36 1 control in a manner that could result in indirect releases of 2 excess water to Mexico. Id. at 68. The court held that any such 3 discretion was significantly constrained as to how much water 4 would be released to Mexico, because a Supreme Court injunction, 5 an international treaty, federal statutes, and contracts between 6 the government and water users ... account for every acre foot of 7 lower Colorado River water. Id. at 69. Because the agency s 8 discretion was constrained in this manner, the court held that 9 Section 7 did not extend[] to operations affecting ... species 10 ... downstream from river flows over which Reclamation has no 11 discretionary control. 12 Id. at 62. To trigger Home Builders application, an agency s 13 discretion must be substantially constrained by a federal 14 statutory command, international treaty, or prior contract, 15 permit, or management decision. The cases demand a careful 16 examination of the authority claimed to constrain the agency s 17 discretion. 18 Here, the SRS Contractors and the Federal Defendants argue 19 that the Bureau s discretion to withhold deliveries for species 20 protection under the SRS Contracts and/or to negotiate new terms 21 for renewed contracts is substantially constrained: (1) because 22 the original SRS Contracts themselves, executed in the mid-1960s, 23 require the SRS Contracts be renewed on the same or substantially 24 similar terms; and/or (2) by D-990, made applicable to the Bureau 25 by Section 8 of the Reclamation Act of 1902. 26 // 27 // 28 // 37 1 2. 2 3 Do the SRS Contracts Significantly Constrain the Bureau s Discretion to Modify Deliveries Under the SRS Contracts? Under certain circumstances, a prior agreement, permit, or 4 management decision that predates the listing of a species may 5 constrain a federal agency s ability to take action on behalf of 6 that listed species, absolving the agency from the requirement of 7 consultation. See Sierra Club, 65 F.3d at 1509 (federal agency s 8 reciprocal right-of-way agreement with a landowner that predated 9 passage of the ESA and only reserved the right to object to 10 projects built in the right-of-way in limited circumstances did 11 not retain for the agency discretion to implement measures that 12 inure to the benefit of ... protected species ); see also EPIC, 13 255 F.3d at 1081 (agency not required to reinitiate consultation 14 when two species found on affected land were listed as threatened 15 after FWS issued an incidental take permit to the landowner 16 because permit did not retain discretionary control to make new 17 requirements to protect species that subsequently might be listed 18 as endangered or threatened ); Defenders of Wildlife, 257 F. 19 Supp. 2d at 62, 69 (Reclamation s discretion to affect operations 20 downstream of the Mexican border to benefit species significantly 21 constrained by a Supreme Court injunction, an international 22 treaty, federal statutes, and contracts between the government 23 and water users that account for every acre foot of lower 24 Colorado River water )(emphasis added); Grand Canyon Trust, 2008 25 U.S. Dist. LEXIS 83853 at *47 (series of management decisions in 26 1996 and 1997, which followed full, lawful consultation 27 processes, legally foreordained Reclamation s discretion to 28 modify the regime to benefit the species on an annual basis). 38 1 Here, the original SRS Contracts, executed before the 2 passage of the ESA and the listing of the Delta smelt, constitute 3 binding, renewable forty year contracts for the diversion, 4 allocation, and place of use of water. This case does not 5 challenge the right of the Bureau to take action on behalf of the 6 now-listed species during the term of those original contracts, 7 all of which have expired. Rather, Plaintiffs allege: (1) that 8 the Bureau s ongoing performance under the renewed contracts 9 violates its duty to protect the species against jeopardy and 10 adverse critical habitat modification; and (2) that the Bureau 11 violated the ESA by executing renewal contracts without 12 performing adequate consultation under ESA § 7(a)(2). 13 at ¶85; Doc. 761 at 33. Doc. 575 With respect to the first allegation, 14 the November 19, 2008 Decision concluded that [t]he present 15 motions do not adequately address whether the Bureau s ongoing 16 performance under the SRS Contracts currently violates the 17 substantive requirements of section 7, which require the Bureau 18 to guard against jeopardy and/or adverse critical habitat 19 modification. As there is no motion before the court for summary 20 adjudication on this claim, no ruling is required. 21 92. Doc. 761 at Nevertheless, the parties focus on a number of SRS Contract 22 provisions that arguably address whether the Bureau retains 23 discretion to modify deliveries under the existing contracts. 24 25 26 27 28 a. Article 3(g)(3). Article 3(g)(3) of the original SRS Contracts provides: The United States does not guarantee the quality of water to be diverted by the Contractor and assumes no responsibility for and neither it nor its officers, 39 agents, or employees shall have any liability for or on account of ... [a]ny damage whether direct or indirect arising out of or in any manner caused by a shortage of water whether such shortage be on account of errors in operation, drought, or unavoidable causes. 1 2 3 4 E.g. SC 04459-60 (original ACID Settlement Contract). Similarly, 5 Article 3(h)(4) of the renewal SRS Contracts provides: The United States assumes no responsibility for and neither it nor its officers, agents, or employees shall have any liability for or on account of ... [a]ny damage whether direct or indirect arising out of or in any manner caused by a shortage of water whether such shortage be on account of errors in operation, drought, or unavoidable causes. 6 7 8 9 10 E.g. SAR 002707 (GCID renewal Settlement Contract). 11 In O Neill v. United States, 50 F.3d 677 (9th Cir. 1995), 12 the Ninth Circuit interpreted a nearly identical shortage 13 provision in a 1963 long-term water service contract between the 14 Bureau and Westlands Water District, which released the Bureau 15 from liability for damages arising from a shortage on account of 16 errors in operation, drought, or any other causes. 17 n.2. Id. at 682 The Ninth Circuit concluded that the contract s liability 18 limitation is unambiguous and that an unavailability of water 19 resulting from the mandates of valid legislation constitutes a 20 shortage by reason of any other causes. Id. at 684. This 21 absolved Interior from any liability in connection with a failure 22 to deliver water to the contractors in any given water year. 23 GCID argues that, in the context of the SRS Contracts, this 24 language simply absolves Reclamation of liability if water is 25 unavailable due to hydrological conditions or legal or regulatory 26 mandates. Doc. 773 at 24. GCID maintains that nothing in the 27 SRS Contracts affords Reclamation discretion to reduce the amount 28 of water that can be diverted by the SRS Contractors. 40 Id. 1 Although the O Neill contracts use the arguably narrower 2 unavoidable causes language, rather than the any other causes 3 language in the SRS Contracts, the more critical distinction 4 involves the express reservation of discretion to reduce 5 deliveries in the O Neill contracts: 6 7 8 9 In any year in which there may occur a shortage from any cause, the United States reserves the right to apportion the available water supply among the District and others entitled under the then existing contracts to receive water from the San Luis Unit in accordance with conclusive determinations of the Contracting Officer .... 10 O Neill, 50 F.3d at 683 n.2. No such supply reduction language 11 is present in the SRS Contracts. In this regard, the SRS 12 Contracts are distinguishable from the O Neill contracts as the 13 SRS Contracts do not grant the Bureau the right to apportion 14 differently in shortage years, except as specifically mandated by 15 the Shasta Critical Year Shortage Provision. 16 b. 17 18 The Shasta Critical Year Shortage Provision. The November 19, 2008 Memorandum Decision addressed the 19 contention that the Shasta Year Shortage Provision arguably 20 exemplified a mechanism by which the Bureau exercises discretion 21 over the quantity of water diverted by the SRS Contractors. 22 761 at 70. 23 24 25 26 27 Doc. Article 5 of the original SRS Contracts provides: CRITICAL YEAR REDUCTION 5. In a critical year the Contractor s base supply and Project water during the period April through October of the year in which the principal portion of the critical year occurs and each monthly quantity of said period shall be reduced by twenty-five percent (25%). SC 04461 (original ACID Settlement Contract). 28 41 Critical year is 1 precisely defined in Article 1(h) as: 2 any year in which either of the following eventualities exists: 3 (1) The forecasted full natural inflow to Shasta Lake for the current water year, as such forecast is made by the United States on or before February 15 and reviewed as frequently thereafter as conditions and information warrant, is equal to or less than three million two hundred thousand (3,200,000) acre-feet; or 4 5 6 7 (2) The total accumulated actual deficiencies below four million (4,000,000) acre-feet in the immediately prior water year or series of successive prior water years each of which had inflows of less than four million (4,000,000) acre-feet, together with the forecasted deficiency for the current water year, exceed eight hundred thousand (800,000) acre-feet. 8 9 10 11 For the purpose of determining a critical year the computed inflow to Shasta Lake under present upstream development above Shasta Lake shall be used as the full natural inflow to Shasta Lake. In the event that major construction completed above Shasta Lake after September 1, 1963, materially alters the present regimen of the stream systems contributing to Shasta Lake, the computed inflow to Shasta Lake used to define a critical year will be adjusted to eliminate the effect of such material alterations. After consultation with the State, the Weather Bureau, and other recognized forecasting agencies, the Contracting Officer will select the forecast to be used and will make the details of it available to the Contractor. The same forecasts used by the United States for the operation of the Project shall be used to make the forecasts hereunder. 12 13 14 15 16 17 18 19 20 21 SC 04453-54 (original ACID Settlement Contract). The relevant 22 language in the renewal contracts is not changed in any material 23 sense. Compare SC 04461 with SAR 002708.14 24 25 26 27 28 14 GCID s renewal contract provides at Article 5(a): In a Critical Year, the Contractor s Base Supply and Project Water agreed to be diverted during the period April through October of the Year in which the principal portion of the Critical Year occurs and, each monthly quantity of said 42 1 Contrary to the November 19, 2008 Memorandum Decision s 2 preliminary finding, the SRS Contractors correctly point out that 3 the Shortage Provision affords the Bureau no discretion 4 whatsoever. When a set of natural conditions that are defined as 5 a Critical Year are present, Article 5 provides that the 6 contractor s base supply and project water shall be reduced by 7 25 percent. The Bureau has no discretion to decline to make that 8 reduction, to adjust the amount of the reduction, or to determine 9 when the reduction must take place. The mandatory Shasta 10 Critical Year Provision does not, by its terms, provide the 11 Bureau discretion to modify deliveries under the existing 12 contracts. 13 Plaintiffs identify no other language reserving to the 14 Bureau the right to reduce SRS Contractors contractual 15 diversions. The SRS Contracts represent a settlement of a 16 dispute over the contracting parties respective water rights and 17 Article 9(a) expresses that it is the mutual intent of the 18 parties not to disturb the quantities of water allocated 19 thereunder, so long as the Contractor fulfills all of its 20 obligations under the contract: 21 22 23 24 25 During the term of this contract and any renewal thereof it shall constitute full agreement as between the United States and the Contractor as to the quantities of water and the allocation thereof between base supply and Project water which may be diverted by the Contractor from the Sacramento River for beneficial use on the land shown on Exhibit B which said diversion, use, and allocation shall not be disturbed so long as the Contractor shall fulfill all of its 26 27 28 period shall be reduced by 25 percent. SAR 002708. 43 obligations hereunder, and the Contractor shall not claim any right against the United States in conflict with the provisions hereof. 1 2 3 SC 04465 (emphasis added). Given the express language of Article 4 9(a), and the absence of any language reserving for the Bureau 5 the right to alter the quantities of water that may be diverted 6 by the SRS Contractors pursuant to their contracts, the Bureau 7 lacks discretion to reduce diversions under the existing 8 contracts for the benefit of listed species. Under Home 9 Builders, section 7(a)(2) does not apply to the Bureau s 10 implementation of the SRS contracts. These are historically 11 protected, vested Senior Water rights that take priority over the 12 United States SRS water rights and the water allocation 13 operations of the CVP. 14 The remaining dispute centers on what binding effect the 15 expired contracts and Water Rights decisions have on the Bureau s 16 ability to renegotiate the contracts to reduce or impair 17 contractual or Board-authorized water rights held by the SRS 18 Contractors for the benefit of the smelt. If the Bureau retains 19 significant discretion in negotiating renewals, section 7(a)(2) 20 consultation requirements may apply to the contract renewal 21 process. 22 23 24 25 3. Do the Original SRS Contracts Significantly Constrain the Bureau s Discretion to Negotiate Upon Renewal for New or Modified Terms for the Benefit of the Smelt? Federal Defendants assert that a distinction exists between 26 the Bureau s discretion to reduce diversions under the original 27 SRS Contracts and its discretion to modify the contract terms 28 44 1 during the renewal process. The Bureau argues that it retains 15 2 broad discretion to negotiate the terms of the SRS Contracts. 3 Doc. 827-2, at 10. The SRS Contractors maintain that the 4 original Article 9(a) requires the Bureau to execute renewal 5 contracts for the quantity of water specified in the original 6 contracts. 7 a. 8 9 Basic Principles of Federal Contract Interpretation. When interpreting a contract entered into pursuant to 10 federal law and to which the United States is a party, 11 interpretation is controlled by federal common law. 12 Water Users Protective Ass n v. Patterson, 204 F.3d 1206, 1210 13 (9th Cir. 1999). 14 concerning the interpretation of contracts. 15 Klamath For guidance, courts look to general principles Id. A written contract must be read as a whole and every part interpreted with reference to the whole, with preference given to reasonable interpretations. Contract terms are to be given their ordinary meaning, and when the terms of a contract are clear, the intent of the parties must be ascertained from the contract itself. Whenever possible, the plain language of the contract should be considered first. 16 17 18 19 20 Id. (internal citations omitted). Courts must, if possible, 21 interpret contracts so as to avoid internal conflict. Trident 22 Ctr. v. Conn. Gen. Life Ins. Co., 847 F.2d 564, 566 (9th Cir. 23 24 25 26 27 28 15 Despite arguing that the Bureau retains considerable discretion during the renewal process, Doc. 827-2 at 10-12, Federal Defendants assert that Home Builders bars application of ESA § 7 to the renewal process because, under D-990, Reclamation lacks the discretion to use water being put to reasonable and beneficial use by the SRS Contractors for the benefit of the Delta smelt, id. at 2. 45 1 1988). The interpretation of a contract is a mixed question of 2 law and fact. Tyler v. Cuomo, 236 F.3d 1124, 1134 (9th Cir. 3 2000)(internal citation and quotation omitted). 4 A contract s language is ambiguous if reasonable people 5 could find its terms susceptible to more than one 6 interpretation. Id. The fact that the parties dispute a 7 contract s meaning does not establish that the contract is 8 ambiguous. Id. [T]he determination whether contract language 9 is ambiguous is a question of law. Tyler, 236 F.3d at 1134 10 (internal citation and quotation omitted). 11 Under the parol evidence rule, a court looks to, and 12 enforces, the plain language of a contract and does not look to 13 extrinsic evidence to interpret the terms of an unambiguous 14 written instrument. United States v. Nunez, 223 F.3d 956, 958 15 (9th Cir. 2000) (internal citation and quotation omitted). 16 However, the Uniform Commercial Code ( U.C.C. ) is another source 17 of federal common law to aid contract interpretation where the 18 federal government is a party, permitting the use of extrinsic 19 evidence in a manner that substantially narrows the traditional 20 application of the parole evidence rule. 21 684. O'Neill, 50 F.3d at For example, pursuant to U.C.C. § 2-202(a), evidence of 22 prior dealings, usage, and performance is also relevant in 23 determining whether the contract is ambiguous. 24 2-202(a). See U.C.C. § Only if a contractual term is ambiguous, may extrinsic 25 evidence (other than evidence of prior dealings, usage, and 26 performance) be utilized to interpret the parties intent in 27 light of earlier negotiations, later conduct, related 28 agreements, and industry-wide custom. 46 Pace v. Honolulu Disposal 1 Serv., Inc., 227 F.3d 1150, 1158 (9th Cir. 2000). 2 b. 3 4 5 Application to Relevant SRS Contract Language. (1) Article 9. Article 9(a) provides in pertinent part: 6 During the term of this contract and any renewal thereof it shall constitute full agreement as between the United States and the Contractor as to the quantities of water and the allocation thereof between base supply and Project water which may be diverted by the Contractor from the Sacramento River for beneficial use on the land shown on Exhibit B which said diversion, use, and allocation shall not be disturbed so long as the Contractor shall fulfill all of its obligations hereunder, and the Contractor shall not claim any right against the United States in conflict with the provisions hereof. 7 8 9 10 11 12 13 SC 04465 (emphasis added). Each contract sets forth a schedule 14 of monthly diversions in Exhibit A and the place of use on lands 15 identified in Exhibit B. For each month in which diversions are 16 authorized, the volume is divided into Base Supply and Project 17 Water Supply. 18 See, e.g., SC 04486.16 On its face, there is at least one reasonable way to 19 interpret Article 9(a): as a declaration that the original 20 contracts and any renewal[s] thereof must be for the same 21 quantity of water and allocation thereof between base supply and 22 Project water set forth in the original contracts. 23 Articles 9(b) and (c) provide the only exception to Article 24 9(a). Article 9(b) introduces a condition subsequent that the 25 contract quantities may change if any party or others undertake a 26 27 28 16 Some Contractors are allocated no Project Water. See Van Camp. Decl., Ex. D-23 (Sacramento River Ranch) & Ex. D-27 (Windswept Land & Livestock Company). 47 1 general stream adjudication. In that event, the existing 2 contractual water rights continue until the Contractor elects to 3 either accept the adjudication and amend the contract 4 accordingly, or terminate the contract: 5 6 7 8 9 10 11 12 13 14 15 16 Nothing herein contained is intended to or does limit rights of the Contractor against others than the United States or of the United States against any person other than the Contractor: Provided, however, That in the event the Contractor, the United States, or any other person shall become a party to a general adjudication of rights to the use of water of the Sacramento River system, this contract shall not jeopardize the rights or position of either party hereto or of any other person and the rights of all such persons in respect to the use of such water shall be determined in such proceedings the same as if this contract had not been entered into, and if final judgment in any such general adjudication shall determine that the rights of the parties hereto are different from the rights as assumed herein, the Contracting Officer shall submit to the Contractor an amendment to give effect to such judgment and the contract shall be deemed to have been amended accordingly unless within sixty (60) days after submission of such amendment to the Contractor the Contractor elects to terminate the contract or within the same period of time the parties agree upon mutually satisfactory amendments to give effect to such judgment. 17 SC 04465-66. 18 terminates because the parties are unable to agree upon 19 amendments to give affect to the judgment resulting from a 20 general stream adjudication, the parties shall no longer be bound 21 by the contract quantities and return to the pre-contract 22 conditions: 23 24 25 26 27 28 Article 9(c) explains that, if the contract In the event this contract terminates, the rights of the parties to thereafter divert and use water shall exist as if this contract had not been entered into; and the fact that as a compromise settlement of a controversy as to the respective rights of the parties to divert and use water and the yield of such rights during the term hereof, this contract places a limit on the total supply to be diverted annually by the Contractor during the contract term and segregates it into base supply and Project water, shall not 48 jeopardize the rights or position of either party with respect to its water rights or the yield thereof at all times after the contract terminates. It is further agreed that the Contractor at all times will first use water to the use of which it is entitled by virtue of its own water rights, and neither the provisions of this contract, action taken thereunder, nor payments made thereunder to the United States by the Contractor shall be construed as an admission that any part of the water used by the Contractor during the term of this contract was in fact water to which it would not have been entitled under water rights owned by it nor shall receipt of payments thereunder by the United States from the Contractor be construed as an admission that any part of the water used by the Contractor during the term of this contract was in fact water to which it would have been entitled under water rights owned by it. 1 2 3 4 5 6 7 8 9 10 SC 04466-67. 11 subsequent or an event that terminates a duty, 17 whereby the 12 entire contractual relationship may be terminated if a general 13 stream adjudication occurs and the parties fail to amend the 14 contract consistent with such a judgment. 15 // Articles 9(a) and 9(b) describe a condition 16 17 18 19 20 21 22 23 24 25 26 27 28 17 The Restatement (Second) of Contracts prefers the label event that terminates a duty over condition subsequent, as such an occurrence is subject to the rules on discharge, covered by Restatement (Second) § 230, and not the rules on conditions covered by § 224. See § 224, comment e. Section 230 provides: (1) Except as stated in Subsection (2), if under the terms of the contract the occurrence of an event is to terminate an obligor s duty of immediate performance or one to pay damages for breach, that duty is discharged if the event occurs. (2) The obligor s duty is not discharged if occurrence of the event (a) is the result of a breach by the obligor of his duty of good faith and fair dealing, or (b) could not have been prevented because of impracticability and continuance of the duty does not subject the obligor to a materially increased burden. 49 1 2 (2) Article 2. Federal Defendants and Plaintiffs argue that the SRS 3 Contractors interpretation of Article 9(a) cannot be reconciled 4 with Article 2, which provides: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 TERM OF CONTRACT For purposes of payment this contract shall be effective as of April 1, 1964, and remain in effect until and including March 31, 2004: Provided, That under terms and conditions agreeable to the parties hereto, renewals may be made for successive periods not to exceed forty (40) years each. The terms and conditions of each renewal shall be agreed upon not later than one (1) year prior to the expiration of the then existing contract: Provided further, That upon written request by the Contractor of the Secretary made not later than one (1) year prior to the expiration of this contract, whenever, account being taken of the amount then credited to the costs of construction of water supply works, the remaining amount of construction costs of water supply works which is properly assignable for ultimate return by the Contractor as established by the Secretary of the interior pursuant to (3) of Section 1 of Public Law 643 (70 Stat. 483), probably can be repaid to the United States within the term of a contract under subsection (d), Section 9 of the 1939 Reclamation Project Act (53 Stat. 1187), this contract may be converted to a contract under said subsection (d) upon terms and conditions agreeable to the United States and the Contractor. Notwithstanding any provisions of this contract, the Contractor reserves and shall have all rights and benefits under Public Law 643. 20 SC 04455 (underlining in original, italics provided). This 21 provision calls generally for renewal contracts to be executed 22 under terms and conditions agreeable to the parties. Given 23 that this provision begins with the phrase [f]or purposes of 24 payment ; largely discusses costs of construction and repayment; 25 and does not mention contract quantity, it arguably has no 26 bearing on the reasonableness of the SRS Contractors 27 interpretation of Article 9. Yet, the heading TERM OF CONTRACT 28 suggests general applicability to the entire contract, rather 50 1 than just issues of payment. 2 Plaintiffs and Federal Defendants argue that Article 2 s 3 general provision that under terms and conditions agreeable to 4 the parties ... renewals may be made for successive periods not 5 to exceed forty (40) years each, allows for renewals may be made 6 on any terms and conditions the Bureau is able to negotiate. 7 However, this general language is followed by the more specific 8 requirement of Article 9(a) that any renewals contain the same 9 terms with respect to water quantity, allocation between Base 10 Supply and Project Water, and place of use as provided in the 11 original SRS Contracts. 12 It is a generally accepted principle of contract 13 interpretation that specific terms and exact terms are given 14 greater weight than general language. Rest. (Second) of 15 Contracts § 203 (1981); see also Info. Sciences Corp. v. United 16 States, 80 Fed. Cl. 759, 792 (2008)(citing Hills Materials Co. v. 17 Rice, 982 F.2d 514, 517 (1992)( Where specific and general terms 18 in a contract are in conflict, those which relate to a particular 18 19 matter control over the more general language. )). To the 20 extent Article 2 and Article 9(a) are in conflict, Article 9(a) 21 controls with respect to water quantity upon renewal. 22 23 24 25 26 27 28 18 In California, under well established principles of contract interpretation, when a general and a particular provision are inconsistent, the particular and specific provision is paramount to the general provision. Prouty v. Gores Tech. Group, 121 Cal. App. 4th 1225, 1235 (2004); see also Cal. Civ. Code § 3534 ( particular expressions [in a contract] qualify those which are general ). 51 1 2 (3) Alternative interpretations of Article 9(a). Plaintiffs and Federal Defendants suggest that Article 9(a) 3 may alternatively be read as a partial integration clause, by 4 arguing that, at least as to the quantity of water, the contract 5 constitutes the full agreement between the parties. 6 interpretation, the quantity portion of the agreement is not to 7 be interpreted in light of any claims in conflict with the 8 provisions of the contract. 9 189 F.R.D. 38, 41 (D. P.R. 1999)( When an agreement states that 10 it constitutes the full agreement between the parties, there is 11 little room for considering outside evidence. ). 12 Under this See Ayala Rios v. Rios Hernandez, However, this interpretation effectively reads the and any 13 renewals out of Article 9(a). 14 original contracts to explicitly apply an integration clause to 15 any subsequent renewal contract, when the subsequent contract 16 could include an integration clause to evidence the parties 17 mutual agreement that the renewed contract is integrated. 18 There would be no need for the The interpretation advanced by the SRS Contractors gives 19 meaning to the phrase any renewal thereof. 20 to mention renewal unless the language is intended to prescribe 21 the volume of water to be provided under a renewal contract. 22 interpretation which gives a reasonable, lawful and effective 23 meaning to all the terms is preferred to an interpretation which 24 leaves a part unreasonable, unlawful, or of no effect. 25 Restatement (Second) of Contracts § 203 (1981)(emphasis added); 26 see also Pac. Gas & Elec. Co. v. United States, 536 F.3d 1282, 27 1288 (Fed. Cir. 2008) (contract interpretation should avoid any 28 52 There is no reason An 1 meaning that renders some part of the contract inoperative ); 2 United States v. Franco-Lopez, 312 F.2d 984, 991 (9th Cir. 2002) 3 (applying Restatement (Second) of Contracts § 203 to construe 4 plea agreement to give some effect to all promises). 5 The meaning of Article 9(a) is clear, not ambiguous. It 6 requires any renewals of the SRS Contracts to be for the same 7 quantity of water, the same allocation between Base Supply and 8 Project Water, and the same place of use as set forth in the 9 original contracts. 10 11 12 c. The Unmistakability Doctrine. Plaintiffs argue that the original SRS Contracts do not 13 include an unmistakable surrender of sovereign power and are 14 therefore subject to subsequent legislation by the sovereign. 15 Doc. 820-2 Bowen v. Public Agencies Opposed to Social Security 16 Entrapment, 477 U.S. 41, 52 (1986), O Neill, 50 F.3d at 686, and 17 Peterson v. United States Deptartment of the Interior, 899 F.2d 18 799 (9th Cir. 1990), cited by Plaintiffs, apply the so-called 19 unmistakability doctrine, which provides the government with a 20 defense against contract claims where existing terms of a 21 contract to which the United States is a party conflict with 22 subsequently enacted federal legislation. See DBSI/TRI IV Ltd. 23 P ship, v. United States, 465 F.3d 1031, 1040 (9th Cir. 2006). 24 The doctrine allows the United States to enter into contracts 25 that bind future Congresses, but only if those contracts contain 26 an unmistakable promise. Kimberly Assoc. v. United States, 261 27 F.3d 864, 869 (9th Cir. 2001). 28 The Supreme Court s United States v. Winstar Corp., 518 U.S. 53 1 839 (1996), decision has engendered continuing debate over 2 application of the unmistakability doctrine. See generally 3 Westlands Water Dist. v. United States, 134 F. Supp. 2d 1111, 4 1145-54 (E.D. Cal. 2001). The unmistakability doctrine does not 5 apply when the government is acting as a private contracting 6 party, Kimberly, 261 F.3d at 869 (citing Winstar, 518 U.S at 7 895), or where the legislative act targets particular contract 8 rights, e.g., Westlands, 134 F. Supp. 2d at 1145-54 (where 9 legislation particularly targets water users with contrary 10 contract rights, the legislation is not a sovereign act for 11 purposes of the unmistakability doctrine). 12 13 14 15 16 [The] unmistakability doctrine analysis requires examination of two questions: (1) in what capacity was the United States acting when it breached its contractual obligations[] and (2) if the United States acted in its sovereign capacity, did the contract waive sovereign rights in unmistakable terms? Kimberly, 261 F.3d at 869. It appears established that ESA constitutes a sovereign act 17 for purposes of the unmistakability doctrine. 18 Irrig n Dist. v. United States, 75 Fed. Cl. 677, 685 (2007)(post- 19 Winstar decision); Madera Irrigation District v. Hancock, 985 20 F.2d 1397 (9th Cir. 1993)( MID )(pre-Winstar decision). See Klamath 21 Plaintiffs argue that Article 9(a) contains no unmistakable 22 surrender of sovereign authority and therefore cannot reasonably 23 be interpreted as the SRS Contractors suggest, because such an 24 interpretation would preclude the application and effect of 25 subsequent legislation (the ESA). 26 application of the unmistakability doctrine, which normally 27 operates as a defense to a breach of contract action brought 28 54 This is an offensive 1 against the United States, Far West Fed. Bank, S.B. v. Office of 2 Thrift Supervision-Director, 119 F.3d 1358, 1365 n.3 (9th Cir. 19 3 1997). The interpretation sought is to apply the ESA to over- 4 write the SRS Contracts agreed quantity, allocation of contract 5 water, and place of use on renewal. There is authority to 6 support the use of the unmistakability doctrine as an 7 interpretive tool. Winstar, 518 U.S. at 879, explains that a 8 contract with a sovereign government will not be read to include 9 an unstated term exempting the other contracting party from the 10 application of a subsequent sovereign act (including an Act of 11 Congress), nor will an ambiguous term of a grant or contract be 12 construed as a conveyance or surrender of sovereign power. 13 However, Article 9(a) is not ambiguous. It explicitly precludes 14 the government from renewing SRS contracts to provide different 15 volume terms. Article 9(a) of the original contracts has 16 contractually binding effect and unmistakably binds future 17 Congresses on this subject matter, subject to the condition 18 subsequent of stream adjudication. Cal. Civ. Code § 1438 ( A 19 condition subsequent is one referring to a future event, upon the 20 happening of which the obligation [to perform] becomes no longer 21 binding upon the other party.... ); 13 Williston on Contracts 22 (4th ed. 2008) § 38.9 (same). 23 24 25 26 27 28 19 The unmistakability doctrine provides that contracts limiting the government s future exercise of regulatory authority must be expressed in unmistakable terms, while the sovereign acts doctrine, provides that government as contractor cannot be held liable for the acts of government as regulator. Far West Fed. Bank, S.B. v. Office of Thrift Supervision-Director, 119 F.3d 1358 (9th Cir. 1997). The caselaw does not clearly delineate the relationship between these two doctrines. Id. 55 1 This case is distinguishable from MID, 985 F.2d 1397, which 2 applied the unmistakability doctrine to a dispute over water 3 contract renewals. MID sued for declaratory and injunctive 4 relief to prevent the United States from changing the terms of 5 its original forty year water contract when that contract came up 6 for renewal. Previous contracts, executed in 1939 and 1951, 7 recited that MID sold land and San Joaquin water rights to the 8 United States in exchange for a permanent annual supply of 9 270,000 acre-feet of water. Id. at 1399, 1401.20 During the 1951 10 contract renewal, the United States sought to add new contract 11 terms, including a term making the contract subject to 12 modification by the United States arising from ESA consultation. 13 Id. at 1405. This ESA term reserved MID s right to challenge 14 the legality and validity of any such modifications made to the 15 contract... 16 Id. The Ninth Circuit rejected the United States argument that 17 MID had no renewal right under the 1951 contract, an 18 19 20 21 22 23 24 25 26 27 28 20 According to MID s Petition for a Writ of Certiorari, 1993 WL 13076836, *16 (Apr. 28, 1993), the 1951 Contract provided: ... the District and the United States on May 24, 1939 executed a contract ... under the terms of which the District ... became entitled to purchase from Friant Dam and reservoir ... a permanent supplemental supply of Class I and Class 2 water... ... the United States recognizes that the District in contracting to transfer and surrender its properties and rights hereinabove referred to relied upon its right to purchase a permanent supplemental supply of water from Friant Dam and Reservoir and the agreement that the United States would construct the facilities described... 56 1 interpretation that would have left the government free to offer 2 renewal on any terms. Id. at 1401. This proposition could not 3 be reconciled with the terms of the 1939 and 1951 contracts 4 providing for (a) a permanent supply of water, and (b) renewal 5 at the expiration of the 40-year term of that contract. Id. at 6 1401. 7 However, the court held the United States could include in 8 the renewal contract a term permitting modifications arising from 9 ESA consultation, because that provision was qualified by 10 language permitting MID to challenge the legality and validity of 11 any such modifications. In analyzing the unmistakability 12 doctrine, the Court examined the renewal provision, which 13 provided: 14 15 16 17 The executory portions of the [original] contract ... remain and shall remain in full force and effect, and the parties, upon the expiration of [the original contract] shall be entitled to all of the rights conferred upon them by article 14 of the [original contract] and shall be subject to all of the terms and conditions of said article. 18 Id. at 1401-02. Section 14 of the original contract provided for 19 future purchases of water: 20 21 22 23 24 25 26 27 28 Whenever the United States shall be prepared to furnish service for irrigation or other purposes from Friant reservoir ..., the United States shall notify the District in writing relative to the availability and character of such service, and shall define the classes and quantities of service then and thereafter to be made available and the respective prices and methods of payment therefor. The District shall have six (6) months from the date of receipt of said notice within which to contract for the purchase of water on the basis of the classes and quantities of service so offered to the District; provided, that, having due regard for the District s procedure required or expedient in negotiating for and securing approval of such contract, the Secretary may grant such extensions of time as he deems desirable. It is mutually understood between the parties hereto that it is not 57 possible at this time to fix a price to be paid by the District for said water, but the United States agrees that the cost of said water to the District shall not exceed charges made to others than the District for the same class of water and service from the said Friant Dam and Reservoir. 1 2 3 4 5 Id. (emphasis in original). The Ninth Circuit found that this renewal provision does 6 not say that all the terms in a renewal contract must be 7 identical to the expired contract, id. at 1406, and further 8 found: 9 10 11 12 13 14 15 16 Whether the environmental terms added into the renewal threaten the proprietary rights preserved in Madera s contract, a permanent right to a certain amount of water at rates no higher than those charged to other purchasers of the same class of water and service from Friant Dam and Reservoir, depends on how the environmental provisions are implemented. The government has not surrendered in unmistakable terms its power to impose any environmental laws on the contractual relationship, so the required clause is not necessarily violative of Madera s contractual rights. Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 52 (1986) (quoting Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 (1982)). 17 Id. at 1406 (parallel citations omitted). 18 question of what conditions would be permissible, as the issue 19 was not before the court. 20 MID did not reach the Id. Here, in contrast, the original contracts do state in 21 specific, unmistakable terms that the defined volume of 22 Sacramento River water dedicated to the SRS Contractors 23 beneficial use in the original contracts must be preserved in 24 identical amounts upon renewal. MID is distinguishable. 25 This conclusion is not altered by the fact that the preamble 26 to each SRS Contract indicates that it was executed in pursuance 27 generally of the act of June 17, 1902 (32 Stat. 388), and acts 28 58 1 amendatory or supplementary thereto.... SC 04450. One of those 2 amendatory or supplementary acts is the CVPIA, which, in 3 § 3406(b), requires the Bureau to immediately operate the CVP to 4 meet all obligations under state and federal law, including the 21 5 ESA. However, the general acts amendatory or supplementary 6 thereto language is subordinate to the specific language of 7 Article 9(a). 8 d. 9 10 Scope of Article 9(a). The original SRS Contracts completely surrender the United 11 States power to change the quantities and place of use of water 12 dedicated for beneficial use in the original SRS Contracts. This 13 does not resolve the issue whether and to what extent the Bureau 14 retains discretion to add non-conflicting conditions that protect 15 species of concern under the ESA. Plaintiffs suggest that, even 16 if contract quantities cannot be altered, the Bureau still 17 retains discretion to seek modifications to provisions related to 18 the timing of diversions and/or times of shortage. The November 19 19, 2008 Memorandum Decision recognizes the Bureau considered 20 alternatives to the Shasta Critical Year Shortage provision in 21 22 23 24 25 26 27 28 21 See also Rio Grande Silvery Minnow v. Keys, 333 F.3d 1109, 1140-42 (10th Cir. 2003)(Seymour, J., concurring), vacated on other grounds by 355 F.3d 1215 (2004)(rejecting dissent s argument that the unmistakability doctrine does not apply to certain water delivery contracts because the government has no discretion under the contracts themselves to change contract terms, reasoning that this stands the unmistakability doctrine on its head, and explaining that contracts written under the reclamation laws and all acts amendatory and supplementary thereto, envision applying subsequent legislation in their interpretation ). 59 1 the Sacramento River Settlement Contract Final Environmental 2 Impact Statement ( SRSC FEIS ), prepared pursuant to the National 3 Environmental Policy Act ( NEPA ), 42 U.S.C. § 4321, et seq.: 4 5 6 7 8 9 10 11 Additional contract terms the Bureau considered to be reasonable and feasible included a proposed payment [to the SRS Contractors] in exchange for using quantities of water below their contracted amounts, (SAR 4140), and a revised 25-year term instead of a 40-year contract term on the renewal contracts, (SAR 4140). These proposed terms could affect both the total quantity and timing of the SRS Contractors water diversions, which in turn have the potential to affect the survival and recovery of Delta smelt. (See, e.g., SAR at 3273 ( Delivery of this water to the points of diversion for the Settlement Contractors has the potential to affect listed fish species that inhabit the Sacramento River and the Sacramento-San Joaquin River Delta by influencing instream flows and water quality conditions. ).) 12 Doc. 761 at 65-66. 13 contract provisions in the context of a NEPA review of the SRS 14 Contract renewals does not necessarily demonstrate that the 15 Bureau could exercise unilateral discretion to impose or 16 implement any of the alternatives spelled out in the FEIS. 17 18 19 20 21 22 23 24 That the Bureau considered these alternative Article 9(a) is broadly worded: During the term of this contract and any renewal thereof it shall constitute full agreement as between the United States and the Contractor as to the quantities of water and the allocation thereof between base supply and Project water which may be diverted by the Contractor from the Sacramento River for beneficial use on the land shown on Exhibit B which said diversion, use, and allocation shall not be disturbed so long as the Contractor shall fulfill all of its obligations hereunder, and the Contractor shall not claim any right against the United States in conflict with the provisions hereof. 25 SC 04465 (emphasis added). Issues related to place of use of 26 diversions are explicitly covered by Article 9(a), which 27 addresses not only the quantities of water, but the allocation 28 thereof between base supply and Project water, for use on the 60 1 land shown on Exhibit B to each SRS Contract. 2 shortage also come within Article 9(a) s reach. Issues related to The Shasta 3 Critical Year Shortage Provision, which is triggered by 4 hydrologic conditions, is part of the overall agreement with 5 respect to the quantity of water that may be delivered. 6 Notwithstanding the hypothetical alternative contract terms 7 suggested in the SRSC FEIS, the Bureau has no discretion to 8 unilaterally modify terms of the contracts with respect to timing 9 of diversions or cutbacks in times of shortage. 10 Neither Plaintiffs nor Federal Defendants point to other 11 types of contract modifications that arguably could enure to the 12 benefit of the smelt but which would fall outside the coverage of 13 Article 9(a). 14 e. 15 16 Conclusion Regarding Article 9(a). The unambiguous language of Article 9(a) requires SRS 17 Contract renewals to be for the same volume of water, allocation 18 between Base Supply and Project Water, and place of use on 19 specifically designated land as the original contracts. This 20 substantially limits the Bureau s discretion to modify the 21 renewal contracts in ways that would benefit the smelt. 22 f. 23 24 25 Anderson Cottonwood Irrigation District & Sutter Mutual Water Company Renewal Contracts Water Reductions. Plaintiffs and Federal Defendants point out that contract 26 volumes were in fact reduced on contract renewal for two SRS 27 Contractors: Anderson Cottonwood Irrigation District ( ACID ) 28 and Sutter Mutual Water Company ( SMWC ). 61 The parties vigorously 1 debate whether the reductions were the result of mutual 2 agreement, the Bureau s own water needs assessments, or a 3 combination of the two. Regardless, because Article 9(a) is not 4 ambiguous, this is irrelevant extrinsic evidence. The contracts 5 in no way prevent mutual agreement by parties to the contracts 6 from waiving or modifying an existing contract term for their 7 mutual benefit, and subject to the requirement that contract 8 water be beneficially used. 9 Because the contractual language of 9(a) is not reasonably 10 susceptible to multiple interpretations, the parol evidence rule 11 bars admission of extrinsic evidence. Pursuant to U.C.C. 12 § 2-202(a), evidence of prior dealings, usage, and performance 13 may provide support for a finding of ambiguity. However, a 14 course of performance requires a sequence of conduct between 15 the parties to a particular transaction if the agreement 16 involves repeated occasions for performance by a party. 17 § 1-303(a)(1). U.C.C. A course of dealing is similarly defined as a 18 sequence of conduct concerning previous transactions between the 19 parties to a particular transaction that is fairly to be regarded 20 as establishing a common basis of understanding for interpreting 21 their expressions and other conduct. U.C.C. § 1-303(b). 22 original SRS Contracts have only been renewed once. The No evidence 23 of any course of performance on repeated occasions was submitted. 24 Evidence from the renewal process, including the reduced volumes 25 in the renewed ACID and SMWC contracts, does not constitute a 26 course of dealing or course of performance. 27 A usage of trade is any practice or method of dealing 28 having such regularity of observance in a place, vocation, or 62 1 trade as to justify an expectation that it will be observed with 2 respect to the transaction in question. U.C.C. § 1-303(c). No 3 argument has been made that any relevant usage of trade 4 evidence exists. 5 g. 6 7 Impact of the CVPIA and D-1641 on SRS Contract Renewal. CVPIA § 3404(c) provides: 8 Renewal of Existing Long-Term Contracts -Notwithstanding the provisions of the Act of July 2, 1956 (70 Stat. 483), the Secretary shall, upon request, renew any existing long-term repayment or water service contract for the delivery of water from the Central Valley Project for a period of twenty-five years and may renew such contracts for successive periods of up to 25 years each. 9 10 11 12 13 The SRS Contractors argue that because this provision commands 14 the Bureau to renew all existing long-term water service 15 contracts, the Bureau must do so on the same terms as provided in 16 the original contracts. On its face, § 3404(c) does not address 17 the terms upon which long-term water service contracts must be 18 renewed. The CVPIA contains no language directing, nor does it 19 otherwise mandate that SRS Contracts be renewed on the same terms 20 as the original contracts. This obligation arises from the SRS 21 Contracts themselves, not the CVPIA. 22 CVPIA § 3404(c)(2) does specifically direct the Bureau to 23 modify the terms of renewal contracts to incorporate all 24 requirements imposed by existing law : 25 26 27 Upon renewal of any long-term repayment or water service contract providing for the delivery of water from the Central Valley Project, the Secretary shall incorporate all requirements imposed by existing law, including provisions of this title, within such renewed contracts. 28 63 1 Similarly, D-1641 included the following conditions concerning 2 endangered species in its amendment to the United States permit 3 to operate the CVP: 4 5 6 7 8 9 10 11 12 This permit does not authorize any act which results in the taking of a threatened or endangered species or any act which is now prohibited, or becomes prohibited in the future, under either the California Endangered Species Act (Fish and Game Code sections 2050 to 2097) or the Federal Endangered Species Act (16 U.S.C.A sections 1531 to 1544). If a take will result from any act authorized under this water right, the permittee/licensee shall obtain authorization for an incidental take prior to construction or operation of the project. Permittee/Licensee shall be responsible for meeting all requirements of the applicable Endangered Species Act for the project authorized under this permit/license. D-1641 at 148. Arguably, CVPIA § 3404(c)(2) is a subsequent statutory 13 command to apply the ESA to the renewed SRS Contracts. 14 the original SRS Contracts, at Article 9(a), contain unmistakable 15 language precluding the sovereign from modifying terms related to 16 the volume, allocation, and place of use of diversions by the SRS 17 Contractors on renewal. However, 18 19 20 21 4. Effect of Reclamation Act Section 8 on the Bureau s Discretion. Alternatively, the SRS Contractors and Federal Defendants 22 maintain that the Bureau s discretion to modify the renewal 23 contracts for the benefit of the Delta smelt is constrained by D24 990, made applicable to the Bureau by Section 8 of the 25 Reclamation Act of 1902 ( Section 8 ). 26 27 28 Section 8 provides: Nothing in this Act shall be construed as affecting or intended to affect or to in any way interfere with the laws of any State or Territory relating to the control, appropriation, use, or distribution of water used in irrigation, or any vested right acquired thereunder, 64 and the Secretary of the Interior, in carrying out the provisions of this Act, shall proceed in conformity with such laws, and nothing herein shall in any way affect any right of any State or of the Federal Government or of any landowner, appropriator, or user of water in, to, or from any interstate stream or the waters thereof. 1 2 3 4 5 43 U.S.C. § 383 (emphasis added). Section 8 commands Reclamation 6 to obey state law when securing the water rights necessary to 7 operate federal Reclamation Projects. See California v. United 22 8 States, 438 U.S. 645, 674-75 (1978). A state may impose 9 conditions upon the United States appropriation of water, so 10 long as the condition actually imposed is not inconsistent with 11 other Congressional directives. See id. at 679; United States v. 23 12 SWRCB, 694 F.2d 1171 (9th Cir. 1982). 13 The Ninth Circuit on remand from the Supreme Court in 14 California v. United States, 438 U.S. 645, considered whether an 15 SWRCB-imposed condition upon the operation of New Melones Dam, 16 prohibiting appropriation of water for power generation, was void 17 as contrary to Congressional intent. 18 F.2d 1171 (9th Cir. 1982). United States v. SWRCB, 694 The decision rejected California s 19 22 20 21 22 23 24 25 26 27 The SRS Contracts were first executed before the Supreme Court decided United States v. California. At that time, Reclamation advanced a narrow interpretation of Section 8 that did not permit California to place conditions on water rights held by the United States, even to protect senior, state water rights-holders and area-of-origin users. The Water Board rejected the United States position in D-990, but it was not until 1978 that United States v. California recognized Section 8 to permit California to place conditions on Reclamation s water rights. 23 The Board, in D-1641, also acknowledges that the Bureau s duty to comply with state law only extends insofar as there is no federal preemption. D-1641 at 125. 28 65 1 argument that only explicit federal statutory policies, such as 2 those the [Supreme] Court found decisive in Ivanhoe Irrigation 3 District v. McCracken, 357 U.S. 275 (1958)(160 acre limitation), 4 and City of Fresno v. California, 372 U.S. 627 (1963)(preference 5 for irrigation use over municipal use), are sufficient to preempt 6 the operation of inconsistent state law, and concluded: We agree with the district court that California s broad contentions must be rejected. We do not think that section 8 of the 1902 Reclamation Act was intended to require any later Congress to tolerate state laws whose operation would otherwise be curtailed by the Supremacy Clause, nor to require any particular form of clear statement by a later Congress before inconsistent state laws were overridden. See Sax, Problems of Federalism in Reclamation Law, 37 U.Colo.L.Rev. 49, 66-68 (1964). Section 8 requires only that state law will apply unless the contrary is intended by Congress; as we stated in United States v. Tulare Lake Canal Co., 677 F.2d 713, 717 (9th Cir. 1982), the Supreme Court decision in California v. United States requires that the United States follow state water law absent a pre-empting federal statute. The question before us, therefore, is whether state law, otherwise applicable by virtue of section 8, is displaced by subsequent congressional action. The analysis undertaken by the district court, consistent with settled preemption principles, was therefore appropriate. 7 8 9 10 11 12 13 14 15 16 17 24 18 Id at 1176 (footnote and parallel citations omitted). 19 20 21 22 23 24 25 26 27 28 24 Federal Defendants suggest that the key question is whether the ESA and the Reclamation Act can be reconciled, and assert that reconciliation can be accomplished simply by not applying the ESA to senior water rights. The law is clear on that question; the ESA is not a super-statute that automatically trumps other federal laws. See e.g., Home Builders, 127 S. Ct. 2518. However, United States v. SWRCB, 694 F.2d 1171, holds that, in applying state laws made applicable to federal agencies by virtue of section 8 of the Reclamation Act, the question is not whether the ESA trumps section 8. Rather, does the ESA preempt the state laws that purportedly apply to the federal agency action by operation of Section 8? The ESA has been found to preempt conflicting state laws in other contexts, see Strahan v. Coxe, 127 F.3d 155, 168 (1st Cir. 1997); Nat l Audubon Soc., 66 1 The Ninth Circuit looked to then-prevailing preemption 2 doctrines to guide its evaluation of whether state law was 3 displaced by a specific provision of the Flood Control Act of 4 1962 pertaining to the sale and delivery of power from the New 5 Melones dam and powerplant: A state statute or regulation is preempted by a federal rule to the extent it conflicts with a federal statute, Maryland v. Louisiana, 451 U.S. 725, 747 (1981), or where it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress, Perez v. Campbell, 402 U.S. 637, 649 (1971), quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941); see also Chicago & North Western Transportation Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317 (1981). 6 7 8 9 10 11 In the case before us, therefore, a state limitation or condition on the federal management or control of a federally financed water project is valid unless it clashes with express or clearly implied congressional intent or works at cross-purposes with an important federal interest served by the congressional scheme. Similar formulations were found appropriate by the Supreme Court of California in Environmental Defense Fund, Inc. v. East Bay Municipal Utility District, 20 Cal.3d 327, 338 (1978), and by Professor Sax in his article, Problems of Federalism in Reclamation Law, 37 U.Colo.L.Rev. 49, 68 (1964). 12 13 14 15 16 17 25 18 Id. at 1176-77 (parallel citations omitted). 19 20 21 22 23 24 Inc. v. Davis, 307 F.3d 835, 307 F.3d 835, 852-53 (9th Cir. 2002); Swan View Coal., Inc., v. Turner, 824 F.Supp. 923, 938 (D. Mont. 1992); United States v. Glenn Colusa Irr. Dist., 788 F. Supp. 1126, 1134 (E.D. Cal. 1992). Whether the ESA preempts state laws made applicable to the Bureau by section 8 of the Reclamation Act has never been addressed. 25 The preemption standard has evolved since United States v. SWRCB was decided: 25 26 27 28 Congress has the constitutional power to preempt state law, Art. VI, cl. 2; [citation], and may do so either expressly-through clear statutory language-or implicitly. Defendants acknowledge that Congress has not expressly preempted any of Whistler s claims, but argue that Section 67 1 The Ninth Circuit cautions against deciding a case on 2 preemption grounds where other resolutions might be possible. 3 4 5 6 7 8 9 10 11 12 13 We are mindful, in deciding whether later federal law overrides inconsistent state law, that we may not seek out conflicts between state and federal regulation where none clearly exists. Joseph E. Seagram & Sons v. Hostetter, 384 U.S. 35, 45 (1966). The Supreme Court noted in Ray v. Atlantic Richfield Co., 435 U.S. 151 (1978), that when a State s exercise of its police power is challenged under the Supremacy Clause, we start with the assumption that the historic police powers of the states were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress. Id. at 157, quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). This admonition is particularly applicable in the reclamation context. In this very litigation, the Supreme Court has detailed the long history of purposeful and continued deference to state water law by Congress. 438 U.S. at 648-70, 653. If the term cooperative federalism had been in vogue in 1902, the Reclamation Act of that year would surely have qualified as a leading example of it. Id. at 650. 14 Id. at 1176 (parallel citations omitted). 15 Here, the SRS Contractors argue that the Bureau s discretion 16 17A of the Securities Act implicitly preempts the claims. 17 18 19 20 21 22 23 24 25 26 27 There are two types of implied preemption: field preemption and conflict preemption. Under field preemption, preemption is implied when Congress so thoroughly occupies a legislative field, that it effectively leaves no room for states to regulate conduct in that field. [citation] Under conflict preemption, Congress's intent to preempt state law is implied to the extent that federal law actually conflicts with any state law. [citation] Conflict preemption analysis examines the federal statute as a whole to determine whether a party s compliance with both federal and state requirements is impossible or whether, in light of the federal statute s purpose and intended effects, state law poses an obstacle to the accomplishment of Congress s objectives. [citation] Whistler Investments, Inc. v. Depository Trust and Clearing Corp., 539 F.3d 1159, 1164 (9th Cir. 2008). 28 68 1 is constrained by D-990, made applicable to the Bureau by Section 2 8 s express language. 3 a. 4 5 (1) 6 7 Relevant Background Principles of California Water Law. California s Dual System of Water Rights. By express provision of Section 8, the Bureau s 8 appropriation of water occurs under California s dual or hybrid 9 system of water rights[,] which recognizes both doctrines of 10 riparian rights and appropriation rights.... United States v. 11 SWRCB, 182 Cal. App. 3d 82, 101 (1986)(internal quotations 12 omitted). 13 14 15 16 17 18 19 20 21 The riparian doctrine confers upon the owner of land the right to divert the water flowing by his land for use upon his land, without regard to the extent of such use or priority in time.... The appropriation doctrine confers upon one who actually diverts and uses water the right to do so provided that the water is used for reasonable and beneficial uses and is surplus to that used by riparians or earlier appropriators. Appropriators need not own land contiguous to the watercourse, but appropriation rights are subordinate to riparian rights so that in times of shortage riparians are entitled to fulfill their needs before appropriators are entitled to any use of the water. And, as between appropriators, the rule of priority is first in time, first in right. The senior appropriator is entitled to fulfill his needs before a junior appropriator is entitled to use any water. 22 Id. at 101-102. [W]ater right priority has long been the 23 central principle in California water law. City of Barstow v. 24 Mojave Water Agency, 23 Cal. 4th 1224, 1243 (2000). 25 26 27 28 [T]he rule of priority applies only to the use of natural or abandoned flows in a watercourse. No riparian or appropriator has a right to use water that was previously stored or imported by another upstream and then released into the watercourse for use downstream. (See §§ 1201 [ All water flowing in any natural channel, excepting so far as it has been or is 69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 being applied to useful and beneficial purposes upon, or in so far as it is or may be reasonably needed for useful and beneficial purposes upon lands riparian thereto, or otherwise appropriated, is hereby declared to be public water of the State and subject to appropriation in accordance with the provisions of this code ], 7075 [ Water which has been appropriated may be turned into the channel of another stream, mingled with its water, and then reclaimed ]....) Furthermore, it is important to understand that priority of right is significant only when the natural or abandoned flows in a watercourse are insufficient to supply all demands being made on the watercourse at a particular time. Obviously, when flows are of sufficient abundance that every water user can fulfill his or her needs, the rule of priority does not matter. As for the determination of an appropriator's priority over other appropriators, for appropriations since 1914 an appropriator's priority is generally fixed by the date of his or her application to appropriate the water. (See § 1450; Hutchins, The California Law of Water Rights, supra, at pp. 94-95, 97, 116.) Section 10500 specifically confirms this application-date priority with respect to applications filed by the state under the Feigenbaum Act. (§ 10500 [ Applications filed pursuant to this part shall have priority, as of the date of filing, over any application made and filed subsequent thereto ].) El Dorado, 142 Cal. App. 4th at 961-962. 17 18 19 (2) Area of Origin Protections. The Bureau s appropriation of water in California for the 20 CVP is also subject to statutory provisions designed to protect 21 water users in the so-called areas of origin (i.e., those 22 wetter areas of California from which the Projects export water). 23 CWC § 11460 provides: 24 25 26 27 28 In the construction and operation by the department of any project under the provisions of this part a watershed or area wherein water originates, or an area immediately adjacent thereto which can conveniently be supplied with water therefrom, shall not be deprived by the department directly or indirectly of the prior right to all of the water reasonably required to adequately supply the beneficial needs of the 70 watershed, area, or any of the inhabitants or property owners therein. 1 2 CWC § 11128 provides that § 11460 applies to the Bureau in its 3 operation of the CVP, as well as to DWR in its operation of the 4 SWP. 5 6 (3) 7 8 Reasonable & Beneficial Use/Prohibition of Unreasonable Use. In California, Superimposed on those basic principles 9 defining water rights is [an] overriding constitutional 10 limitation that the water be used as reasonably required for the 11 beneficial use to be served. United States v. SWRCB, 182 Cal. 26 12 App. 3d 105 (citing Cal. Const., art. X, § 2 ). The rule of 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26 The amendment provides: It is hereby declared that because of the conditions prevailing in this State the general welfare requires that the water resources of the State be put to beneficial use to the fullest extent of which they are capable, and that the waste or unreasonable use or unreasonable method of use of water be prevented, and that the conservation of such waters is to be exercised with a view to the reasonable and beneficial use thereof in the interest of the people and for the public welfare. The right to water or to the use or flow of water in or from any natural stream or water course in this State is and shall be limited to such water as shall be reasonably required for the beneficial use to be served, and such right does not and shall not extend to the waste or unreasonable use or unreasonable method of use or unreasonable method of diversion of water. Riparian rights in a stream or water course attach to, but to no more than so much of the flow thereof as may be required or used consistently with this section, for the purposes for which such lands are, or may be made adaptable, in view of such reasonable and beneficial uses; provided, however, that nothing herein contained shall be construed as depriving any riparian owner of the reasonable use of water of the stream to which the owner's land is riparian under reasonable methods of diversion and use, or as depriving any appropriator of water to which the appropriator is lawfully entitled. This section shall be 71 1 reasonable use is now the cardinal principle of California's 2 water law. 3 4 5 Id. (citing CWC § 100). The courts have construed this rule as a valid exercise of the police power of the state to regulate the use and enjoyment of water rights for the public benefit .... Thus, no water rights are inviolable; all water rights are subject to governmental regulation. 6 Id. at 106 (citations omitted). 7 The Reclamation Act incorporates the concept of reasonable 8 and beneficial use: 9 10 The right to the use of water acquired under the provisions of this Act shall be appurtenant to the land irrigated, and beneficial use shall be the basis, the measure, and the limit of the right. 11 43 U.S.C. § 372 (emphasis added). 12 intended to be governed by state law doctrines concerning 13 beneficial use. 14 697 F.2d 851, 854 (9th Cir. 1983). 15 dictates an outcome in a water rights dispute that is contrary to 16 the outcome suggested by a beneficial use inquiry, the beneficial 17 use approach prevails, as the beneficial use requirement in the 18 Reclamation Act constitutes a specific congressional directive 19 which acts as a restraint upon [the Bureau]. 20 also United States v. Clifford Matley Family Trust, 354 F.3d 1154 21 (9th Cir. 2004). 22 The beneficial use inquiry is United States v. Alpine Land & Reservoir Co., Moreover, if state law Id. at 855; see The Ninth Circuit defines beneficial use as the general 23 rule that water is beneficially used (in an accepted use such as 24 irrigation) when it is usefully employed by the appropriator, 25 26 27 self-executing, and the Legislature may also enact laws in the furtherance of the policy in this section contained. 28 72 1 Alpine, 697 F.2d at 854, subject to two qualifications: 2 (1) [T]he use cannot include any element of waste which, 3 among other things, precludes unreasonable transmission loss 4 and use of cost-ineffective methods, id.; 5 (2) [T]he use cannot be unreasonable considering 6 alternative uses of the water, id. 7 The Board was required to make a finding beneficial use of 8 SRS Contract water in the designated areas of use. Moreover, the 9 Bureau made beneficial use findings in connection with execution 10 of the renewal contracts. Plaintiffs do not challenge these 11 beneficial use findings. 12 (4) 13 14 Public Trust Doctrine. Another important principle that may compete with the rule 15 of priority is the public trust doctrine. El Dorado, 142 Cal. 16 App. 4th at 966. 17 18 19 20 21 22 23 24 25 26 27 28 Id. That doctrine recognizes that the sovereign owns all of its navigable waterways and the lands lying beneath them as trustee of a public trust for the benefit of the people. (National Audubon Society v. Superior Court (1983) 33 Cal.3d 419, 434.) Ecological values are among those values protected by the public trust. (Id. at p. 435.) The state has an affirmative duty to take the public trust into account in the planning and allocation of water resources, and to protect public trust uses whenever feasible. (Id. at p. 446.) Indeed, this duty prevents any party from acquiring a vested right to appropriate water in a manner harmful to the interests protected by the public trust. (Id. at p. 445.) Thus, like the rule against unreasonable use, when the public trust doctrine clashes with the rule of priority, the rule of priority must yield. Again, however, every effort must be made to preserve water right priorities to the extent those priorities do not lead to violation of the public trust doctrine. The National Audubon court recognized that [t]he courts and 73 1 the Water Board have concurrent jurisdiction in public trust 2 cases. Id. Whether diversion of water by the SRS Contractors 3 pursuant to the SRS Contracts violates the public trust is not 4 before the court for adjudication in these cross-motions. 5 6 Neither the SRS Contractors nor the Federal Defendants argue 7 that any of these general principles of California water law 8 constrain the Bureau s discretion in the abstract. Rather, it is 9 argued that any such constraint on the Bureau arises as a result 10 of the application of these principles through D-990. 11 b. 12 13 D-990. When the United States applied for water permits to operate 14 the CVP, the process necessarily required a determination of 15 whether there was unappropriated water in the applicable 16 watershed. CWC § 1375 ( As prerequisite to the issuance of a 17 permit to appropriate water ... [t]here must be unappropriated 18 water available to supply the applicant.... ). After more than 19 75 days of hearings over the course of more than a year, the 20 Board issued a conditional water permit to the United States, as 21 documented in D-990, which analyzed applicable considerations of 22 California s dual water rights system, the rules of priority, the 23 area of origin protections, and the concept of reasonable and 24 beneficial use. 25 The SRS Contractors and the Federal Defendants maintain that 26 D-990 constrains the Bureau s discretion in a number of ways. 27 28 74 c. 1 2 3 D-990 s Reliance on the 1956 Study & Its Progeny Does Not Demonstrate the Exact Nature and Extent of the SRS Contractors Underlying Water Rights. D-990 relied upon the 1956 Cooperative Studies, C-2BR, and 4 C-650 ( the Studies ) as bases for the finding that 5 unappropriated water remained available to support a permit for 6 the Bureau s proposed use. 7 Contractors assert that the underlying water rights relied upon 8 in the Studies demonstrate the nature and extent of their water 9 rights; and because, at least according to Van Camp s analysis, 10 the total volume of their underlying water rights relied upon in 11 the applicable historical studies exceeds the total volume of 12 water contracted for in the SRS Contracts, the Bureau possesses 13 no discretion under Home Builders to diminish the volume of 14 deliveries to the SRS Contractors without their prior consent. 15 See, e.g., D-990 at 28-32. The SRS There is no doubt that some volume of water rights possessed 16 by the SRS Contractors in the Sacramento River system are vested 17 and senior to the United States water rights. 18 Contractors argue that the water rights identified in the Studies 19 reflect the true nature and extent of their senior rights, and 20 the Board relied upon those water rights in D-990. 21 partially true. 22 The SRS This is only The Report on 1956 Cooperative Study Program reiterated 23 that the studies were intended to produce information that would 24 be used to further negotiations aimed at reaching an agreement on 25 water rights along the Sacramento River and in the Delta. 26 00065. 27 studies were solely for the purpose of evaluating the effects of SC It acknowledged that the assumptions utilized in the 28 75 1 [those] assumptions upon water right yields, deficiencies, and 2 supplemental water requirements, and no implications as to the 3 legal status of such assumed rights are intended. 4 (emphasis added). SC 00066 The supplemental studies (C-2BR and C-650) 5 were intended to support an equitable basis for determining the 6 yields of existing rights along the Sacramento River and in the 7 Delta. 8 D-990 at 31. D-990 accepted that the Studies assumptions, particularly 9 with respect to water rights, may differ considerably from the 10 rights as may be determined by a court of law. Id. D-990 11 recognizes the uncertain nature of using the Studies to 12 approximate the volume of unappropriated water remaining for the 13 Bureau s proposed uses. Neither the Studies nor D-990 purport to 14 finally and exactly delineate and quantify legally binding, 15 vested senior water rights of the SRS Contractors. Rather, they 16 facilitated informed consensual agreements among the SRS 17 Contractors and the Bureau that specifically defined forty year 18 water service entitlements, renewable as to the same quantities, 19 allocations, and places of use, to achieve the requisite 20 certainty absolutely essential to the long term operations of the 21 CVP. 22 23 24 25 26 27 28 In fixing the rates of direct diversion to be allowed, the Board is inclined to greater liberality than usual because of the magnitude of the Project and the complexities involved in determining at this time the direct diversion as distinguished from rediversions of stored water. However, notwithstanding these considerations, we would require greater particularity in proof of direct diversion requirements were we not assured that no prejudice to others will result from failure of [the] applicant to produce such proof. This assurance is provided by conditions which will be imposed in the permits subjecting exports of water from the Delta to use within the Sacramento River Basin and 76 Delta so that there can be no interference with future development of these areas. 1 2 Id. at 40. 3 Board acknowledged that the pre-existing rights had never been 4 quantified: 5 In encouraging settlement between the parties, the Throughout these proceedings, the Bureau's representatives have consistently affirmed their policy to recognize and protect all water rights on the Sacramento River and the Delta existing under State law at the times these applications were filed, including riparian, appropriative and others. Unfortunately, these rights have never been comprehensively defined. It is imperative, therefore, that the holders of existing rights and the United States reach agreement concerning those rights and the supplemental water required to provide the holders with a firm and adequate water supply, if a lengthy and extremely costly adjudication of the waters of the Sacramento River and its tributaries is to be avoided. 6 7 8 9 10 11 12 27 13 Id. at 75 (emphasis added). 14 The United States has consistently disputed the nature and 15 extent of the SRS Contractors underlying water rights. This is 16 reflected in Article 9(b) of the SRS Contracts, which expressly 17 reserves the right of all parties to advance their respective 18 positions concerning the extent of their water rights in any 19 general Sacramento River adjudication: (b) Nothing herein contained is intended to or does limit rights of the Contractor against others than the United States or of the United States against any person other than the Contractor: Provided, however, That in the event the Contractor, the United States, or any other person shall become a party to a general adjudication of rights to the use of water of the Sacramento River system, this contract shall not 20 21 22 23 24 25 26 27 28 27 The Board disclaims authority to directly adjudicate or otherwise resolve disputes over the validity, nature, or SWRCB, Information Pertaining to Water Rights in California - 1990 at p.8, see supra note 5. Accordingly, D-990 cannot be read as definitively establishing the nature, extent, or quantity of any of the pre-1914 water rights held by the SRS Contractors. 77 jeopardize the rights or position of either party hereto or of any other person and the rights of all such persons in respect to the use of such water shall be determined in such proceedings the same as if this contract had not been entered into.... 1 2 3 4 SC 04465-66 (original ACID Contract)(underlining in original, 5 italics added). This means that upon the occurrence of the 6 condition subsequent, the mutual obligations under those 7 contracts are no longer binding. 13 Williston on Contracts, 8 § 38:9. 9 Congress also urged the Bureau to reach an agreement with 10 the SRS Contractors to avoid [a] monstrous lawsuit ... that 11 would embroil the [CVP] in litigation for decades, see Engle, 12 CVP Documents, Part I, S. Res. 1, 84th Cong. (2d Sess.), H.R. 13 Res. 416 at 675-783 (1956), but noted that, should the matter be 14 taken to court, the Department of Justice would undoubtedly 15 represent the interest of the Federal Government and assert every 16 possible claim to the water.... 17 Id. at 681. The record indicates that the Studies were intended to 18 facilitate a settlement to firmly quantify the SRS Contractors 19 and Bureau s contractual water rights that would become the basis 20 for the issuance of water right permits to the Bureau and for the 21 long-term water service contracts and renewals that utilized 22 those firm quantities (subject to a mandatory 25% reduction in 23 drought conditions). The Board explicitly disclaimed that the 24 SRS Contractors rights have never been comprehensively 25 defined. The United States has never conceded and consistently 26 reserved the right to challenge the SRS Contractors 27 representations as to the nature and extent of their senior 28 rights, except as set forth in the long term SRS Contracts and 78 1 their renewals. The essence of the settlement was to define 2 contract quantities so that there could be certainty in 3 allocation of water entitlements in the Sacramento River System. 4 That settlement, except for performance under the contracts, does 5 not permanently, legally define the nature and extent of the SRS 28 6 Contractors senior water rights. 7 d. 8 9 The Effect of Condition 23.29 Whether and to what extent Condition 23 in D-990 constrains 10 Reclamation s discretion presents a more difficult question. 11 Condition 23 provides: The export of stored water under permits issued pursuant to Applications 5626, 9363 and 9364 outside the watershed of Sacramento River Basin or beyond the Sacramento-San Joaquin Delta shall be subject to the reasonable beneficial use of said stored water within said watershed and Delta, both present and prospective, provided, however, that agreements for the use of said 12 13 14 15 16 28 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiffs argue in the alternative that the water rights records relied upon in the Studies and D-990 do not accurately quantify the SRS Contractors water rights. Specifically, Plaintiffs assert that D-990 s ultimate conclusion that 6.5 million acre feet of water per year ( MAFY ) is available to the United States as unappropriated water is inconsistent with the fact that the SRS Contractors claim water rights that exceed the entire natural flow of the Sacramento River. Doc. 820-2 at 7, n. 6. The SRS Contractors responded during oral argument that Plaintiffs calculations fail to consider the re-use by SRS Contractors and the Bureau of return flows. 29 It appears undisputed that the other conditions subordinate the United States water rights to other uses that are not relevant here. Condition 20 concerns diversions above Shasta Dam, D-990 at 84; Condition 21 covers water appropriations by counties, id. at at 84-85; and Condition 22 governs the retention of water permitting authority by the SWRCB, id. at 73, 85. 79 stored water are entered into with the United States prior to March 1, 1964, by parties currently diverting water from Sacramento River and/or Sacramento-San Joaquin Delta and prior to March 1, 1971, by parties not currently using water from Sacramento River and/or Sacramento-San Joaquin Delta. 1 2 3 4 5 D-990 at 85-86.30 In general, this provision conditions the United States 6 export of water outside the watershed on the reasonable and 7 beneficial use of water within the watershed and Delta. 8 in-basin users a period of time within which to enter into 9 contracts with the Bureau to attain priority water rights subject 10 It gives to a Board-imposed time limit: 11 [T]he public interest requires that water originating in the Sacramento Valley Basin be made available for use within the Basin and the Sacramento-San Joaquin Delta before it is exported to more distant areas, and the permits granted herein will so provide. 12 13 14 However, the Board will limit the period of time in which such preference may be exercised. This limitation is necessary in order to best conserve in the public interest the water to be appropriated. 15 16 17 30 18 19 20 21 22 23 24 25 26 27 28 Plaintiffs raise a serious question that is unaddressed by any of the SRS Contractors or Federal Defendants briefs. Condition 23, on its face, applies only to the export of water outside the watershed of the Sacramento River Basin or beyond the Sacramento-San Joaquin Delta.... Could acts taken by the Bureau for benefit of the smelt ever trigger this provision, given that the smelt s entire critical habitat lies within the confines of the Bay-Delta Estuary? See Doc. 820-2 (citing 58 Fed. Reg. 12,854 (Mar. 5, 1993). It is difficult to understand how actions taken by the Bureau to benefit the smelt could ever be considered an export of water outside the Sacramento watershed and Delta. However, given that the Bureau has never attempted to restrict diversions by the SRS Contractors, reduce SRS Contract quantities, or otherwise seek to modify the SRS Contract terms upon renewal, it is unclear how this language would apply to actions not yet proposed or implemented. As the pending motion is resolved on alternative grounds, it is not necessary to decide this issue. 80 1 Id. at 72-73. 2 RD 108 asserts that D-990 (presumably through Condition 23) 3 was intended to insure that the United States honor[ed] senior 4 water rights and the rights established under the area-of origin 5 laws. Doc. 772 at 2. 6 duty upon the Bureau. D-990 does not explicitly impose such a Rather, Condition 23 specifically subjects 7 the Bureau s export of water to the reasonable and beneficial 8 use of stored water as embodied by any contracts entered into 9 prior to specific deadlines. The Board balanced the goal of 10 protecting existing rights-holders and area of origin interests 11 against the broader public interest in beneficial use by 12 requiring existing rights-holders to memorialize their claimed 13 water rights in the written Settlement Contracts. Condition 23 14 requires compliance with the provisions of any contract entered 31 15 into by the deadlines, nothing more. Although D-990 adopts the 16 Studies as an appropriate basis for negotiating the quantity 17 terms of the Settlement Contracts, D-990 does not prescribe the 18 exact terms nor the quantities that should be included in any 19 final contract. 20 GCID suggests, alternatively, that Condition 23 incorporates 21 the SRS Contracts, making all of their terms binding upon the 22 Bureau as conditions of their water right. Doc. 773 at 18. 23 24 25 26 27 28 31 GCID suggests that the United States failure to enter into the SRS Contracts or abide by existing SRS contracts would nullify the United States water rights. See Doc. 773 at 14-15. Accepting this premise, arguendo, if the Bureau had not entered into the SRS Contracts, there would have been no water rights in the Bureau to approve. Any breach by the Bureau of the terms of the SRS Contracts would give rise to relief for breach prescribed by the contract itself under applicable federal and state law. 81 1 Condition 23 makes the United States export of stored water 2 subject to the reasonable and beneficial use of said stored 3 water within said watershed and Delta, both present and 4 prospective, provided, however, that agreements for the use of 5 said stored water are entered into with the United States prior 6 to certain deadlines. Nothing in Condition 23 or any other part 7 of D-990 evidences an intent to condition the United States 8 export of stored water upon compliance with the terms of the 9 agreements referenced in Condition 23. Rather, export of SRS 10 water is conditioned on reasonable and beneficial use of stored 11 water within the watershed and Delta. The contracts themselves 12 constrain the federal agency s exercise of its discretion in a 32 13 variety of ways. 14 The United States contends that it has broad authority to 15 negotiate the terms of the SRS contracts, but that this does not 16 matter for purposes of the Home Builders analysis, because 17 Reclamation lacks the discretion to use water being put to 18 reasonable beneficial use by the SRS Contractors for the 19 20 21 22 23 24 25 26 27 28 32 GCID suggests that it is the policy of federal courts to promote settlement before trial, citing Exxon Valdez v. Exxon Mobile Corp., 490 F.3d 1066, 1079 (9th Cir. 2007), and Franklin v. Kaypro Corp., 884 F.2d 1222, 1225 (9th Cir. 1989), and that this general policy drove the decision to employ the alternative of entering into the SRS Contracts, as opposed to embarking upon litigation. Doc. 773 at 17-18. GCID further argues that once the SRS Contracts were wisely entered into, the United States became bound to the terms of those settlements as a condition of their own water rights. Id. at 18. Although the United States discretion may be bound by any agreement it enters into, any federal policy favoring settlement does not determine whether the SRS Contracts do or do not significantly constrain the Bureau s discretion. 82 1 benefit of the Delta smelt. Doc. 827-2 at 3. Although D-990 2 affirms that the reasonable and beneficial use of SRS Contract 3 water within the Sacramento River watershed and Delta is given 4 priority over the Bureau s export of water, D-990 requires any 5 users that exercise such preference to enter into contracts with 6 the United States. The United States rejoins it has the 7 discretion to negotiate the terms of the SRS contracts upon 8 renewal, which impliedly includes the power to use any water 9 subject to its discretion for the benefit of Delta smelt. This 10 position is not consistent with the United States contentions 11 that it had no discretion to deliver any quantity of water less 12 than the SRS Contract amounts subject to the mandatory 25% 13 drought reduction price. The Bureau s arguments are 14 irreconcilably contradictory and are rejected. 15 16 17 18 e. D-990 Does Not Substantially Constrain the Bureau s Discretion to Negotiate Modifications to the Settlement Contracts. Although D-990 conditions the Bureau s water rights permit 19 for the operation of the Shasta Division of the CVP upon 20 satisfaction of vested rights, D-990 does not quantify those 21 rights in a manner that definitively precludes the Bureau from 22 exercising discretion. Condition 23 mandates that the Bureau s 23 export of stored water be subject to the reasonable and 24 beneficial use within the Sacramento River and Delta so long as 25 those uses were reduced to writing by dates certain. The parties 26 chose to agree on contract quantities that must remain fixed on 27 renewal unless a general stream adjudication occurs. It is the 28 contracts, not D-990, that constrain the Bureau s discretion in 83 1 this case. 2 f. 3 Preemption Analysis Unnecessary. D-990 does not constrain the Bureau s discretion to 4 5 negotiate modifications to the Settlement Contracts. In light of 6 the principle that findings of preemption should be avoided 7 whenever possible, see United States v. SWRCB, 694 F.2d at 1176, 33 8 it is not necessary to engage in a preemption analysis here. 9 // 10 // 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 33 Plaintiffs argue in the alternative that it is not necessary to engage in the preemption analysis because, as a result of both D-990 and Federal Reclamation law, the Bureau is obligated to ensure that any water delivered pursuant to its contracts is put to reasonable and beneficial use. Plaintiffs assert that the reasonable and beneficial use standard incorporates within it concepts that give the Bureau discretion to protect wildlife and related environmental values. It is undisputed that Federal Defendants must perform a reasonable and beneficial use analysis as part of the contracting process. Federal Defendants take the position that the reasonable and beneficial use analysis the Bureau is required to undertake does not extend to an evaluation of whether the contract quantities should be reduced to protect fisheries resources under the reasonable and beneficial use and/or public trust doctrines. Doc. 815 at 18. Federal defendants argue that Reclamation, as operator of the CVP, is generally not the regulator here, but is itself regulated by state water law. Id. There is authority to support the proposition that a federal court must look to state law when interpreting and applying the Reclamation Act s reasonable and beneficial use requirement, see United States v. Alpine Land & Reservoir Co., 697 F.2d 851, 854 (9th Cir. 1983), but neither side identifies authority that resolves whether the Bureau is required to do so. As the need for a preemption analysis is obviated by other findings, it is unnecessary to resolve this issue. 84 IV. 1 2 CONCLUSION More than forty-five years ago, the United States and the 3 SRS Contractors accepted the directions of the Water Board and 4 the United States Congress to bring certainty to, and to enable 5 the long-term operation of, the CVP through their compromised 6 contractual recognition of senior Sacramento River System water 7 rights, rather than undergo a complex, years-long stream 8 adjudication. After a more than one-year study of the history 9 and extent of all parties SRS water rights, the parties settled 10 on long-term water contracts to continue for a 40 year term and 11 renewals thereafter, for fixed, contractually defined quantities, 12 allocations, and places of use. This facilitated the continued 13 operation of the CVP. 14 Article 9(a) of the Contracts provides for the exact 15 definition of water rights achieved in the original SRS Contracts 16 to be preserved upon renewal. This substantially constrains the 17 Bureau s discretion to reduce diversions of Sacramento River 18 System water for the benefit of the Delta smelt or any other 19 reason, by fixing SRS Contractor quantities, allocations, and 20 places of use upon renewal. If the Bureau decides to terminate 21 or abandon these settled water rights, its discretion will be 22 restored at that time. Until then, under Home Builders, ESA 23 § 7(a)(2) does not apply to the SRS Contract renewal process. 24 The SRS Contracts contain the fail-safe of a condition 25 subsequent, permitting non-renewal of the SRS Contracts if a 26 general stream adjudication establishes that the full nature and 27 extent of the SRS Contractors vested senior water rights differs 28 from the rights defined in the Contracts. 85 This is not unfair, 1 unjust, or against the public interest, because without the SRS 2 Contractors contribution of their senior water rights to the 3 CVP, the CVP Units served by the Sacramento River System could 4 not exist or effectively function. 5 Plaintiffs motion for summary judgment as to the ESA 6 § 7(a)(2) claims against the SRS Contracts is DENIED; the SRS 7 Contractors and Federal Defendants cross-motions as to the SRS 8 Contracts are GRANTED. 9 Federal Defendants shall submit a form of order consistent 10 with this memorandum decision within five (5) days of electronic 11 service. 12 13 SO ORDERED 14 Dated: April 27, 2009 15 16 /s/ Oliver W. Wanger Oliver W. Wanger United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 86

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