Reply Brief — Kansas v. Colorado

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Sapreme |

(yy FILED

No. 105, Original

In The OPFICE OF THE CLERE

Supreme Court of the United States

¢

STATE OF KANSAS,

Plaintiff,

STATE OF COLORADO,

Defendant,

and

UNITED STATES OF AMERICA,

Defendant-Intervenor.

*

On Exceptions To The Third Report

Of The Special Master

4.

KANSAS’ REPLY TO BRIEF

FOR THE UNITED STATES

.

Caria J. STOVALL

Attorney General of Kansas

Joun W. Campsett

Chief Deputy Attorney General

Joun M. Cassipy

Assistant Attorney General

Lecann E. Rotts

Special Assistant Attorney General

Joun B. Draper

Counsel of Record

Special Assistant Attorney General

ANprREW S. MONTGOMERY

Montcomery & ANvokews, PA.

Post Office Box 2307

Santa Fe, New Mexico 87504-2307

(505) 982-3873

February 2, 2001

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) M2283)

TABLE OF CONTENTS

Page

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SUMMARY OF ARGUMENT...............--.0000: 2

Ria be recteigdne sieves beawaededeeds 3

I. The United States’ Position is Inconsistent with

the Court's Rejection of Balancing the Equities

as a Basis for Determining Prejudgment Inter-

GE ocd Kh cc cence edasviscneunsevessesesececcs 3

II. Balancing the Equities is Inconsistent with the

Contract Remedy Adopted by the Court for

Breach of an Interstate Water Compact....... +

ee | ereeeeere are ahshndneeuh etekeune 7

TABLE OF AUTHORITIES

Page

Cases

City of Milwaukee v. Cement Division, National Gyp-

gs OE BE EE aE SF rr 3

New Jersey v. New York, 523 U.S. 767 (1998)........... 4

Texas v. New Mexico, 462 U.S. 554 (1983) ............. 4

Texas v. New Mexico, 482 U.S. 124 (1987) ...... 3, 4, 5, 6

West Virginia ex rel. Dyer v. Sims, 341 U.S, 22 (1951)..... 4

West Virginia v. United States, 479 U.S. 305 (1987)..... 3

STATUTES

Arkansas River Compact, 63 Stat. 145 (1949) .... passim

Pecos River Compact, 63 Stat. 159 (1949)............. 4

MisceLtANEOUS

Restatement ‘Second) of Contracts (1981)............. 5

Third Report of the Special Master, Kansas v. Colo-

SG Fe ES GUI ME 0 vo sc ccvesenescscucesns 1

KANSAS’ REPLY TO BRIEF

FOR THE UNITED STATES

STATEMENT

The State of Kansas has filed one exception to the

Third Report of the Special Master in this case (“Third

Report”). That exception challenges the Special Master’s

recommendation that prejudgment interest not be

awarded as part of damages incurred in the years

1950-1968 as a result of violations of the Arkansas River

Compact by the State of Colorado. Colorado has filed

four exceptions to the Third Report. Those exceptions

challenge the Special Master’s recommendations with

regard to (1) the Eleventh Ametidment, (2) the signifi-

cance of the unliquidated nature cf Kansas’ claim in

relation to prejudgment interest, (3) a balancing of the

equities in relation to the amount of prejudgment interest

and other damages, and (4) the Master’s findings on crop

losses. Both States have filed replies. In addition, the

United States has filed its Brief for the United States in

Opposition to the Exceptions of Kansas and Colorado

(“U.S. Brief”).

The United States opposes all of Colorado’s excep-

tions except the evidentiary exception regarding crop

losses, which it does not address. U.S. Brief 13-26. The

United States supports inclusion of prejudgment interest

in quantifying damages for breach of an interstate com-

pact because it “is awarded not as a penalty, but as an

element of compensation,” and because not awarding

interest in such cases could “result in an unjustified

windfall for the offending Sta'e and undermine a poten-

tially important incentive for States to comply with the

requirements of an interstate compact.” U.S. Brief 26.

Nevertheless, in the final three paragraphs of its brief, the

United States opposes the Kansas exception, contending

that the Special Master “has provided a sound basis for

an award of prejudgment interest that reasonably bal-

ances the equities of each State.” U.S, Brief 26-27.

The Court has allowed both States to file briefs in

reply to the United States. This brief addresses only the

United States’ discussion relevant to the Kansas exception.

6 —_

SUMMARY OF ARGUMENT

The United States’ suggestion that it is appropriate to

balance the equities in determining prejudgment interest

is not consistent with the Court’s precedents. The result

of the United States’ argument, if accepted by the Court,

would be to deprive Kansas of an essential element of

compensation for Colorado’s breach of the Arkansas

River Compact. Under similar circumstances, the Court

has flatly rejected a balancing of equities as a means of

determining an award of prejudgment interest. It would

be unwise to depart from affording a complete remedy

for a breach of contract in favor of an amorphous “bal-

ancing of the equities” analysis, especially in a case such

as this, where one consequence would be to reduce the

incentive that States otherwise have to honor their com-

pact obligations. Moreover, to withhold prejudgment

interest as the United States advocates would conflict

with the Court’s most recent analysis of remedies for

violation of an interstate water allocation compact.

-—--——--—

ARGUMENT

1. The United States’ Position is Inconsistent with the

Court’s Rejection of Balancing the Equities as a

Basis for Determining Prejudgment Interest.

In West Virginia v. United States, 479 U.S. 305 (1987), a

contract enforcement suit by the United States against the

State of West Virginia, the Court rejected a balancing of .

equities as a means of determining whether prejudgment

interest should be assessed as part of the contract remedy

in that case. The Court stated, “The District Court held

that whether interest had to be paid depended on a

balancing of equities between the parties; the Court of

Appeals rejected such an approach, as do we.” Id., at 311,

n. 3 (emphasis added); accord, Cily of Milwaukee v. Cement

Division, National Gypsum Co., 515 U.S. 189, 199 (1995)

(rejecting arguments that prejudgment interest should be

witheld on the ground that it would be “inequitable”).

Although the United States cites West Virginia v. United

States, U.S. Brief 21, n. 4, it offers no explanation for why

a sovereign State such as Kansas should receive less

compensation for a breach of contract with a State than

the United States did there. The Arkansas River Compact

“is, after all, a contract” between Kansas and Colorado.

Texas v. New Mexico, 482 U.S. 124, 128 (1987). The ade-

quacy of the compensation afforded for breach of a con-

tract with a State should not vary with the identity of the

plaintiff.

Hl. Balancing the Equities is Inconsistent with the

Contract Remedy Adopted by the Court for Breach

of an Interstate Water Compact.

The Court's leading case on remedies for breach of an

interstate compact is Texas v. New Mexico, 482 U.S. 124

(1987). There, the Court held that the Court would pro-

vide a remedy for past breaches of compact obligations.

Id., at 128. The Court, observing ‘at an interstate com-

pact is a contract, explained that a compact “remains a

legal document that must be construed and applied in

accordance with its terms.” Ibid. (emphasis added) (citing

West Virginia ex rel. Dyer v. Sims, 341 U.S. 22, 28 (1951));

accord, New Jersey v..New York, 523 U.S. 767, 811 (1998)

(” ‘{U]nless the compact to which Congress has consented

is somehow unconstitutional, no court may order relief

inconsistent with its express terms,’ .. . no matter what

the equities of the circumstances might otherwise invite”)

(quoting Texas v. New Mexico, 462 U.S. 554, 564 (1983)).

Texas v. New Mexico thus confirms that the Court will

not reweigh the equities that the compacting parties have

kt tanced in adopting a compact, but that it will enforce a

compact “in accordance with its terms.” In that case, the

Court rejected New Mexico's argument that it had acted

in good faith and should therefore be relieved of its

obligation to pay damages on account of its breach of the

Pecos River Compact. Yet this is exactly the result that the

United States urges, i.e., that Colorado’s good faith, its

lack of knowledge or reason to know of its Compact

breaches prior to 1969, should relieve it of a part of its

duty to compensate Kansas. Although the Court did not

explicitly reject a “balancing of the equities” approach, it

effectively reached that result.

First, the Court stated firmly that it would provide a

remedy “if the parties intended to make a contract and

the contract’s terms provide a sufficiently certain basis

for determining both that a breach has in fact occurred

and the nature of the remedy called for.” 482 U.S., at 129

(citing Restatement (Second) of Contracts § 33(2), and

Comment b (1981)).

Second, the Court drew a distinction between what

was essentially an equitable remedy dependent on a bal-

ancing of equities, on the one hand, and a legal remedy in

damages, on the other hand:

“To order making up the shortfalls by delivering

more water has all the earmarks of specific per-

formance, an equitable remedy that requires

some attention to the relative benefits and burdens

that the parties may enjoy or suffer as compared

with a legal remedy in damages.” 482 U.S., at 131

(emphasis added).

Thus, the Court distinguished the legal remedy of dam-

ages for breach of a compact from specific performance of

a compact, which would require a balancing of the equi-

ties. The implication is strong, therefore, that in provid-

ing a legal remedy in damages, like the one that Kansas

seeks here, the Court intended to exclude the balancing

of equities normally associated with an equitable remedy.

Indeed, the Court turned aside New Mexico's plea that its

good faith should outweigh Texas’ right to relief for New

Mexico’s past failures to perform:

“There is often a retroactive impact when courts

resolve contract disputes about the scope of a

promisor’s undertaking; parties must perform

today or pay damages for what a court decides

they promised to do yesterday ard did not. In

our view, New Mexico cannot escape liability

for what has been adjudicated to be past failures

to perform its duties under the Compact.” Id., at

129.

Colorado, like New Mexico, cannot escape liability for

what have been adjudicated to be past failures to perform

its duties under a compact. Yet this is exactly what Colo-

rado is demanding and what the Special Master, and now

the United States, have endorsed in recommending that

prejudgment interest for the period 1950-1968 be with-

held.

CONCLUSION

The Kansas exception should be sustained, and the

Colorado exceptions should be overruled.

Respectfully submitted,

Carta J. STOVALL

Attorney General of Kansas

Joun W. Campsetr

Senior Deputy Attorney General

Jounn M. Cassipy

Assistant Attorney General

Lecanp E. Rotrs

Special Assistant Attorney

General

JoHN B. Draper

Counsel of Record

Special Assistant Attorney

General

ANDREW S. MONTGOMERY

Montcomery & ANpbrews, P.A.

Post Office Box 2307

Santa Fe, New Mexico 87504-2307

(505) 982-3873