Smith v. Central Arizona Water Conservation District

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JOHN E. SMITH, husband, and as 

Trustee of the Smith Family Trust;

MARY LOU SMITH, wife; PRETZER

LAND & CATTLE, an Arizona

corporation, No. 03-16962

Plaintiffs-Appellants,

v.  D.C. No.

CV-03-00505-EHC

CENTRAL ARIZONA WATER OPINION

CONSERVATION DISTRICT, a

municipal corporation of the State

of Arizona,

Defendant-Appellee.



Appeal from the United States District Court

for the District of Arizona

Earl H. Carroll, District Judge, Presiding

Argued April 14, 2005

Submitted August 3, 2005

San Francisco, California

Filed August 10, 2005

Before: Procter Hug, Jr., David R. Thompson, and

Pamela Ann Rymer, Circuit Judges.

Opinion by Judge Thompson

10321

10324 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

COUNSEL

J. Gordon Cook, Phoenix, Arizona, for the plaintiffs-

appellants.

Stuart L. Somach, Sacramento, California, for the defendant-

appellee.

OPINION

THOMPSON, Senior Circuit Judge:

John E. Smith, Mary Lou Smith, the Smith Family Trust,

and the Pretzer Land and Cattle Company (“the landowners”)

own land located within the Maricopa-Stanfield Irrigation and

Drainage District and the Central Arizona Irrigation and

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10325

Drainage District (“the irrigation districts”), respectively.

Through a master contract and related subcontracts with the

Central Arizona Water Conservation District (“Conservation

District”) and the United States Department of the Interior,

the irrigation districts receive and distribute water reclaimed

from the Central Arizona Project (“the project”).

In anticipation of a legal settlement, the terms of which

would alter the amount of water the irrigation districts receive

from the project each year for distribution to landowners and

other users within their respective districts, the landowners

filed this civil action in Arizona state court against the Con-

servation District. The landowners sought declaratory relief to

prevent modification of the existing contracts, claiming vested

water rights pursuant to state and federal law, and pursuant to

the terms of the project contracts. The Conservation District

removed the action to federal court. The landowners moved

the district court to abstain from exercising federal jurisdic-

tion and to instead remand their action back to state court. The

district court denied the landowners’ motion to abstain and

remand. It then dismissed their complaint for failure to state

a claim pursuant to Rule 12(b)(6) of the Federal Rules of

Civil Procedure. We have jurisdiction pursuant to 28 U.S.C.

§ 1291, and we affirm.

I.

Congress enacted the Reclamation Act of 1902, ch. 1093,

32 Stat. 388 (1902), to provide federal financing, construc-

tion, and operation of water storage and distribution projects

throughout the western United States. Pursuant to the 1902

Act, Congress in 1968 enacted the Colorado River Basin Proj-

ect Act, 43 U.S.C. §§ 1501-1556 (1986 & Supp. 2005)

(“Project Act”), to further the development of the water

resources of the Colorado River Basin, and to apportion those

resources among several states. Id. § 1501. The Project Act

authorized construction and operation of the Cental Arizona

Project to store and to deliver Colorado River water to Ari-

10326 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

zona and western New Mexico for irrigation and municipal

and industrial use.1 See id. § 1521. The Project Act also autho-

rized the Secretary of the Interior to enter into a master con-

tract with a political subdivision of each state to arrange for

repayment of project construction and operation costs. See id.

§ 1524.

To this end, the Arizona legislature created the Conserva-

tion District. See Ariz. Rev. Stat. § 48-3701 et seq. (1985).

The Conservation District was directed to contract with the

Secretary of the Interior to finance the construction and opera-

tion of the project. Id. § 48-3703. This master contract was

executed in 1972, and amended in 1988 (“master contract”).

State law additionally authorized the Conservation District

to enter into subcontracts with irrigation districts for the deliv-

ery of project water. Ariz. Rev. Stat. § 48-3703. The irrigation

districts, in turn, would levy property taxes on landowners

within the districts to assist in repayment of the project costs

pursuant to the terms of the master contract. Id. The irrigation

district subcontracts were executed in 1983, following the

Secretary’s apportionment of the rights to purchase project

water.2 Each irrigation district contracted with the Conserva-

tion District and with the United States to receive a particular

1

We have previously discussed the history and statutory framework of

the Central Arizona Project at length. Maricopa-Stanfield Irrigation &

Drainage Dist. v. United States, 158 F.3d 428, 430-31 (9th Cir. 1998). We

therefore briefly describe the project’s water allocation framework only as

necessary to decide this appeal.

2

The specific method selected for allocation of project water was an

“allocation-contract” mechanism, whereby the Secretary apportioned the

right to purchase project water to three priority pools: Indian tribes,

municipal and industrial users, and non-Indian agricultural users. Within

these pools, the Secretary allotted water to specific users who could then

purchase project water by entering subcontracts with the United States and

the Conservation District. See Maricopa-Stanfield Irrigation & Drainage

Dist., 158 F.3d at 431 (citing CAP Water Allocations, 48 Fed. Reg.

12,446, 12,446-49 (March 24, 1983).

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10327

percentage of the non-Indian agricultural priority project

water, and in return, each irrigation district agreed to repay

the costs related to construction and operation of the facilities

needed to deliver their portion of the project water. The mas-

ter contract and each of the subcontracts were subsequently

validated by Arizona state court judgments as required by the

terms of the contracts.

The landowners each entered into memoranda of under-

standing and water service agreements with their respective

irrigation districts. These agreements provide that the relevant

irrigation district will deliver project water for irrigation pur-

poses to the landowners, such right to be appurtenant to the

land, in exchange for which the landowners agree to pay taxes

and water service fees. The agreements also provide that wells

and other groundwater rights associated with the land are to

be conveyed to the irrigation districts, in accordance with

state law. Neither the Conservation District, nor the United

States, is a party to the memoranda of understanding or to the

water service agreements between the irrigation districts and

the landowners.

In November 2001, the landowners filed an action in state

court against their respective irrigation districts. Smith v.

Maricopa-Stanfield Irrigation & Drainage Dist., No. CV-

2001-00924 (filed Nov. 6, 2001 Ariz. Super. Ct.). The land-

owners alleged that the irrigation districts were in the process

of considering a settlement agreement—the Arizona Water

Settlement Agreement—that would offer the irrigation dis-

tricts partial debt relief on their project financing obligations,

and, in return, would require the irrigation districts to relin-

quish all or part of their allocated rights to non-Indian agricul-

tural priority project water. Id. The landowners sought a

declaratory judgment to preempt the possibility that the irriga-

tion districts would give up these water rights through the pro-

posed settlement. See id. The landowners’ action was stayed

for approximately one year, with the stay lifted in March 2003

10328 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

following the Conservation District’s formal approval of the

Arizona Water Settlement Agreement.3

Following formal approval of the settlement, the landown-

ers continued to litigate the Smith v. Maricopa-Stanfield Irri-

gation & Drainage District state court action, and in addition

they filed this declaratory judgment action in state court

against the Conservation District. The landowners alleged

possession of vested property rights to reclamation water pur-

suant to state and federal law, the master contract, and the

project subcontracts, and sought a declaration prohibiting the

Conservation District from interfering with those rights. The

landowners alleged, notwithstanding the Arizona Water Set-

tlement Agreement, that the Conservation District is obligated

to continue to deliver project water to the irrigation districts

for the benefit of the landowners.

The Conservation District removed the present case to fed-

eral court, and then moved to dismiss the landowners’ com-

plaint for failure to state a claim, arguing that the landowners

could not obtain the requested relief because they are neither

parties to, nor third-party beneficiaries of, the relevant con-

tracts. Alternatively, the Conservation District sought dis-

missal for failure to join the United States as an indispensable

party. The landowners opposed the motion to dismiss and

moved the district court to abstain and to remand the case to

state court, arguing that dismissal pursuant to Colorado River

Water Conservation District v. United States, 424 U.S. 800

3

The Conservation District approved the Arizona Water Settlement

Agreement on December 5, 2002. The settlement is now federal law. Ari-

zona Water Settlements Act, Pub. L. 108-451, 118 Stat. 3478 (2004). The

Act essentially modifies the 1983 allocations of reclamation water to pro-

vide, inter alia, additional agricultural priority water to specified Arizona

Indian tribes. See id. § 104(a)(1), 118 Stat. at 3487-88. The terms of the

settlement agreement require the irrigation districts to relinquish at least

a portion of their existing non-Indian agricultural priority water rights. In

exchange, the irrigation districts receive partial debt forgiveness and an

extension of their repayment terms. Id. § 106(b), 118 Stat. at 3493.

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10329

(1976),4 was warranted in light of the pending related state

action, Smith v. Maricopa-Stanfield Irrigation & Drainage

District.

The district court denied the landowners’ motion to abstain

and remand. The district court concluded that a stay or dis-

missal of the federal action was not warranted because the

pending state court action was an entirely separate proceeding

involving claims distinguishable from those presented in the

federal action. The district court then granted the Conserva-

tion District’s motion to dismiss the landowners’ complaint

for failure to state a claim, determining that because the land-

owners were neither parties to nor third-party beneficiaries of

the master contract or the project subcontracts, the landown-

ers could not bring suit to enforce those contracts. Because

the landowners had failed to state a claim, the district court

found it unnecessary to evaluate the Conservation District’s

contention that the United States is an indispensable party.

This appeal followed.

II.

The landowners appeal the district court’s decision to exer-

cise its jurisdiction despite their pending state court action

against the irrigation districts, Smith v. Maricopa-Stanfield

Irrigation & Drainage District. Whether the facts of a partic-

ular case conform to the requirements for a Colorado River

stay or dismissal is a question of law which we review de

novo. United States v. Morros, 268 F.3d 695, 703 (9th Cir.

2001).

[1] In Colorado River, the Supreme Court was concerned

4

“The Colorado River doctrine is not technically an abstention doc-

trine,” Holder v. Holder, 305 F.3d 854, 867 n.4 (9th Cir. 2002); therefore,

a district court’s decision declining to exercise federal jurisdiction pursu-

ant to Colorado River is more properly referred to as a stay or dismissal,

as the case may be.

10330 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

with the problem posed by the contemporaneous exercise of

concurrent jurisdiction by state and federal courts. Gilbertson

v. Albright, 381 F.3d 965, 982 n.17 (9th Cir. 2004) (en banc).

In such cases, the Court recognized there may be circum-

stances in which traditional abstention principles do not

apply, yet considerations of “ ‘wise judicial administration,

giving regard to conservation of judicial resources and com-

prehensive disposition of litigation,’ ” nonetheless justify a

decision to stay or dismiss federal proceedings pending reso-

lution of concurrent state court proceedings. Colorado River,

424 U.S. at 817 (quoting Kerotest Mfg. Co. v. C-O-Two Fire

Equip. Co., 342 U.S. 180, 183 (1952)). Such circumstances

are, however, exceedingly rare. As we have previously

observed, the Colorado River doctrine is a “narrow exception

to ‘the virtually unflagging obligation of the federal courts to

exercise the jurisdiction given them.’ ” Holder, 305 F.3d at

867 (quoting Colorado River, 424 U.S. at 817).

[2] We have consequently held that “the existence of a sub-

stantial doubt as to whether the state proceedings will resolve

the federal action precludes the granting of a [Colorado

River] stay.” Intel Corp. v. Advanced Micro Devices, Inc., 12

F.3d 908, 913 (9th Cir. 1993). “[E]xact parallelism” between

the state and federal proceedings is not required, Nakash v.

Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989); however, any

substantial doubt is sufficient to preclude a stay:

When a district court decides to dismiss or stay

under Colorado River, it presumably concludes that

the parallel state-court litigation will be an adequate

vehicle for the complete and prompt resolution of the

issues between the parties. If there is any substantial

doubt as to this, it would be a serious abuse of dis-

cretion to grant the stay or dismissal at all . . . .

Intel, 12 F.3d at 913 (quoting Moses H. Cone Mem’l Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 28 (1983)); see also Gulf-

stream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271,

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10331

277 (1988) (quoting Moses H. Cone, 460 U.S. at 28) (district

court may enter a Colorado River stay “only if it has full con-

fidence that the parallel state proceeding will ‘be an adequate

vehicle for the complete and prompt resolution of the issues

between the parties.’ ”).

[3] Having reviewed the pleadings in both the state and fed-

eral actions, we conclude that the likelihood of the state court

proceeding adequately addressing the issues presented in the

federal proceeding was, at the time of the district court’s deci-

sion, unclear at best.5 Although the landowners in their com-

plaint in the state action referenced the project subcontracts as

a basis for their asserted water rights, it was by no means

clear from their state action complaint that they sought a

determination of their rights under the project subcontracts.

Rather, the relief they sought focused on their rights against

the irrigation districts under the memoranda of understanding

and water service agreements. Moreover, there was little to

indicate that the state court proceeding would necessarily

entail an examination of the landowners’ rights, if any, under

the master contract or the project subcontracts. In these cir-

cumstances, substantial doubt existed regarding whether the

state court action would resolve the claims at issue in this fed-

eral proceeding. We therefore agree with the district court that

a stay or dismissal pursuant to Colorado River was unwar-

ranted.

5

The district court denied the landowners’ motion for a Colorado River

stay on September 12, 2003. Over a year later, the Arizona state court

decided the issues the landowners assert in this case. Smith v. Maricopa-

Stanfield Irrigation & Drainage Dist., No. CV-2110-00924 (Nov. 16,

2004) (order granting summary judgment). Because “[d]ocuments or facts

not presented to the district court are not part of the record on appeal,”

United States v. Elias, 921 F.2d 870, 874 (9th Cir. 1990), we consider the

district court’s decision not to stay or dismiss this action in light of the

then-available facts.

10332 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

III.

We review de novo the district court’s order under Federal

Rule of Civil Procedure 12(b)(6) dismissing the landowners’

complaint for failure to state a claim. Decker v. Advantage

Fund, Ltd., 362 F.3d 593, 595-96 (9th Cir. 2004). Whether the

district court correctly applied the relevant law in concluding

the landowners are not third-party beneficiaries of the relevant

contracts is a mixed question of law and fact which we review

de novo. Klamath Water Users Protective Ass’n v. Patterson,

204 F.3d 1206, 1210 (9th Cir. 2000).

The landowners contend that state law, rather than federal

law, controls the interpretation of the master contract and the

project subcontracts, and that, under state law, the landowners

are third-party beneficiaries of those federal subcontracts. We

disagree.

[4] Federal law governs the interpretation of contracts

entered into pursuant to federal law and to which the govern-

ment is a party. O’Neill v. United States, 50 F.3d 677, 682

(9th Cir. 1995). Although we have recognized limited circum-

stances in which state law may apply to the interpretation of

a federal contract, such as when the United States is not a

party, or when the direct interests and obligations of the gov-

ernment are not in question, see, e.g., Flagstaff Med. Ctr., Inc.

v. Sullivan, 962 F.2d 879, 890 (9th Cir. 1992), such circum-

stances do not exist in the present case. The United States is

a party to the master contract and to each of the relevant sub-

contracts. Moreover, the claims asserted by the landowners

implicate the government’s obligations and interests: the Ari-

zona Water Settlement Agreement facilitates the United

States government’s obligations to certain Indian tribes, while

protecting the government’s interest in ensuring eventual

repayment of the project’s construction costs.

[5] Contracts implementing federally-funded water recla-

mation projects are by nature necessarily federal, cf. Nebraska

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10333

v. Wyoming, 325 U.S. 589, 615 (1945), and we have therefore

“consistently applied federal law to interpret reclamation con-

tracts.” Mohave Valley Irrigation & Drainage Dist. v. Norton,

244 F.3d 1164, 1165 (9th Cir. 2001) (citing Klamath, 204

F.3d at 1210, and Kennewick Irrigation Dist. v. United States,

880 F.2d 1018, 1032 (9th Cir. 1989)). Accordingly, we apply

federal law principles of contract interpretation to evaluate the

landowners’ claims under the project master contract and the

relevant subcontracts.

The landowners contend, whether the contracts are inter-

preted pursuant to state or federal law, the landowners are

properly classified as third-party beneficiaries of the contracts

who can therefore assert claims against the Conservation Dis-

trict. Having reviewed the text and purpose of the master con-

tract and the relevant subcontracts, we conclude the

landowners are not intended third-party beneficiaries.

[6] In both Klamath and Orff v. United States, 358 F.3d

1137 (9th Cir. 2004), aff’d on other grounds, 125 S. Ct. 2606

(2005), we determined that nonparties to federal water recla-

mation contracts were not intended beneficiaries of the con-

tracts, even though the contracts operated to the nonparties’

benefit and were entered into with them in mind. Orff, 358

F.3d at 1147; Klamath, 204 F.3d at 1212; see also Long v.

Salt River Valley Water Users’ Ass’n, 820 F.2d 284, 288-89

(9th Cir. 1987) (holding that a plaintiff landowner and real

estate developer lacked standing to sue to enforce the Central

Arizona Project Master Contract because the landowner was

not a party to the contract).

Klamath involved a dispute over water recovered and

appropriated through a water reclamation project in the Klam-

ath Basin. 204 F.3d at 1209. The project agreement, autho-

rized pursuant to the Reclamation Act of 1902, specified that

the California Oregon Power Company (COPCO) would con-

struct the Link River Dam, and in return would retain the right

to operate the dam for a specified period of time. Id. The

10334 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

United States and COPCO were the sole parties to the con-

tract. Id. COPCO’s successor in interest entered an agreement

with the United States Bureau of Reclamation to modify the

project contract to satisfy various federal requirements,

including compliance with the Endangered Species Act and

recognition of tribal water and fishing rights. Id. at 1209-10.

Irrigators within the Klamath Basin challenged the contract

modifications, seeking enforcement of the contract’s existing

terms. Id.

[7] We held that the irrigators would not be entitled to

enforce the contract unless they could qualify as third-party

beneficiaries. Id. at 1210. Applying federal law, we described

the relevant analysis:

To sue as a third-party beneficiary of a contract, the

third party must show that the contract reflects the

express or implied intention of the parties to the con-

tract to benefit the third party. The intended benefi-

ciary need not be specifically or individually

identified in the contract, but must fall within a class

clearly intended by the parties to benefit from the

contract.

Id. at 1211 (internal citations and footnotes omitted). We fur-

ther noted the relative difficulty of demonstrating third-party

beneficiary status in the context of government contracts:

“Parties that benefit from a government contract are generally

assumed to be incidental beneficiaries, and may not enforce

the contract absent a clear intent to the contrary.” Id.

We found no language within the contract in Klamath suffi-

cient to overcome the “clear intent” hurdle. See id. Nor could

we confer third-party beneficiary status on the irrigators con-

sistent with the objectives of the contract. We noted that

“[a]lthough the Contract operates to the Irrigators’ benefit by

impounding irrigation water, and was undoubtedly entered

into with the Irrigators in mind, to allow them intended third-

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10335

party beneficiary status would open the door to . . . a result

not intended by the Contract.” Id. at 1212.

In Orff, individual farmers and water users within a water

district brought suit against the United States. 358 F.3d at

1141. The farmers sought to prevent the United States from

modifying an existing water allocation contract pursuant to

which the water district received water from the Central Val-

ley Project, a federal water management project authorized

pursuant to the Reclamation Act of 1902. Id. The government

asserted the farmers’ claims were barred by sovereign immu-

nity. Id. at 1142. Although Congress had expressly waived the

government’s sovereign immunity for suits seeking to inter-

pret contractual rights in federal water reclamation contracts

where the United States is a necessary party defendant, the

waiver was limited to suits involving the rights of a “contract-

ing entity.” Id. at 1144 (citing 43 U.S.C. § 390uu). Accord-

ingly, we were called upon to decide whether the farmers

were third-party beneficiaries of the water allocation subcon-

tract such that they could be considered “contracting entities.”

Id.

Citing Klamath, we determined that the contract in Orff did

not evince the necessary “clear intent” to benefit the farmers.

Id. at 1145. The contract’s language pertaining to the obliga-

tion of the water users to pay tolls and assessments as a pre-

requisite to the receipt of water did not “delineate[ ] a

contractual relationship between the farmers and the govern-

ment.” Id. at 1146. We found “similarly unavailing” language

providing that “anyone having or claiming to have by,

through, or under the District the right to the use of any of the

[Central Valley Project] water supply” would be entitled to an

account adjustment in the event of a water shortage. Id. As in

Klamath, that this language might show the contract was

entered into with the farmers “in mind” was not enough to

confer third-party beneficiary status. Id. at 1147. The govern-

10336 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

ment had therefore not waived its immunity from suit, and the

district court lacked jurisdiction. Id. at 1149.6

Notwithstanding the fate of the farmers in Orff and the irri-

gators in Klamath, the landowners here allege the requisite

clear intent to confer third-party beneficiary status is dis-

played by various provisions of the master contract and of the

relevant subcontracts.

[8] The landowners point to three provisions of the master

contract to support their claim to intended beneficiary status.

First, the landowners cite ¶ 8.3 of the master contract which

provides that “[t]he obligation of the United States to deliver

water under this contract is subject to: The availability of such

water for use in Arizona under the provisions of the Colorado

River Compact, . . . the Boulder Canyon Project Act, . . . the

Colorado River Basin Project Act, . . .” and the Supreme

Court’s opinion in Arizona v. California, 373 U.S. 546

(1963). Amended Master Repayment Contract ¶ 8.3(a). This

language does not manifest an intent to benefit the landowner.

Rather, it merely specifies that the government’s obligation

under the master contract to deliver water is subject to speci-

fied federal law.

The landowners’ reliance on ¶ 8.17 of the master contract

is likewise misplaced. Paragraph 8.17 provides “the Contrac-

tor [Central Arizona Water Conservation District] agrees that

all project facilities will be available for the diversion, trans-

portation, and carriage of water for Indian and non-Indian

uses pursuant to arrangements or contracts therefor entered

6

Our holding in Orff was not disturbed by the Supreme Court. In its Orff

opinion, the Court construed 43 U.S.C. § 390uu as insufficient to waive

sovereign immunity for suits brought solely against the United States. 125

S. Ct. at 2610. The Court held § 390uu permits joinder of the United

States when necessary to permit a complete adjudication of rights under

a reclamation contract. Id. at 2610-11. The Court expressly declined to

decide the question we answered in our opinion in Orff, namely, whether

§ 390uu grants consent to suit by noncontracting entities. Id. at 2611 n.3.

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10337

into on their behalf with the Secretary.” Amended Master

Repayment Contract ¶ 8.17. This phrase simply indicates that

the Conservation District agrees to abide by the terms of the

project subcontracts for the delivery of project water; it does

nothing to create vested water rights in the recipients of the

project water.

Finally, the landowners argue that ¶ 10.5 of the master con-

tract, which requires Arizona state court validation before the

United States may be bound, necessarily incorporates the pro-

cedural requirements of state law. They argue that, under state

law, one purpose of the validation proceedings was to inten-

tionally and directly benefit affected landowners and to recog-

nize them as the primary parties in interest. We find nothing

within the language of the contract to suggest that the Arizona

court validation proceedings were required for this purpose.

Moreover, even if we assume the validity of the landowners’

characterization of the purpose of Arizona court validation

proceedings, this type of inferred purpose is irrelevant to the

“clear intent” inquiry. Cf. Orff, 358 F.3d at 1148 (although a

noncontracting party may have a stake in a judgment related

to or arising under a particular contract, a court’s judgment

order does not necessarily render the noncontracting party an

intended beneficiary).7

[9] The landowners also invoke various provisions of the

subcontracts to support their claim of third-party beneficiary

status, yet we find the language of the subcontracts similarly

unavailing. The landowners rely on the subcontracts’ explana-

tory recitals which state a purpose to “furnish[ ] irrigation and

municipal and industrial water supplies.” Subcontract ¶ 2.

This hortatory statement of purpose at best might qualify the

7

We also reject the landowners’ contention that Arizona state court vali-

dation of the subcontracts served to recognize the end water users as pri-

mary parties in interest to those contracts for the same reasons that

validation of the master contract failed to confer third-party beneficiary

status.

10338 SMITH v. CENTRAL ARIZ. WATER CONSERV’N

landowners as incidental beneficiaries, a status that does not

confer enforceable rights. Indeed, the sheer breadth of the

objectives expressed in the subcontracts, including flood con-

trol, wildlife conservation, and recreation, undermines the

landowners’ contention that the particular groups who might

be benefitted are intended beneficiaries as opposed to inciden-

tal beneficiaries of the subcontracts. We conclude here, as we

did in Klamath, that to allow third-party beneficiary status to

all of the groups potentially benefitted under the subcontracts

would produce a result certainly not intended. See Klamath,

204 F.3d at 1212.

Nor does the subcontracts’ requirement that the United

States “use all reasonable diligence to make available to the

Subcontractor the quantity of Project Water specified [here-

in],” Subcontract ¶ 4.1, meet the “clear intent” standard

required for intended third-party beneficiary status. This lan-

guage obligates the United States to the subcontractor, in this

case the irrigation districts, and is silent as to any other bene-

ficiary. We assuredly will not infer a contracting party’s

required intent from complete silence.

The landowners are also unaided by the subcontracts’

requirement that “[a]ll uses of Project Water and Return Flow

shall be consistent with Arizona water law unless such law is

inconsistent with the Congressional directives applicable to

the Central Arizona Project.” Subcontract ¶ 4.3(a). This provi-

sion does not, as the landowners assert, confer vested rights

to non-Indian agricultural priority water rights under state

law. To the contrary, this language limits the possibility that

project water rights might indefeasibly vest in the landowners

or any other end users of project water.

IV.

We conclude that the district court properly declined to stay

the proceedings in this case pending the resolution of a related

state court action. Substantial doubt existed at the time of the

SMITH v. CENTRAL ARIZ. WATER CONSERV’N 10339

district court’s decision as to whether the state court action

would provide complete and prompt resolution of the issues

presented in this case.

[10] As to the merits of the landowners’ claims, those

claims arise out of contracts entered into pursuant to federal

water reclamation law, the interpretation of which is governed

by federal law. Under federal law principles of contract inter-

pretation, incidental beneficiaries may not assert claims predi-

cated upon a federal contract in the absence of a clear intent

to confer an enforceable benefit. That a government contract

was written with a particular group in mind is not sufficient

to demonstrate the contracting parties’ intent to benefit that

group. In this case, because neither the master contract nor the

relevant subcontracts contain language evincing a clear intent

to benefit the landowners, the landowners are not third-party

beneficiaries, and their complaint was properly dismissed by

the district court pursuant to Federal Rule of Civil Procedure

12(b)(6).

AFFIRMED.