Amicus Curiae Brief — Kansas v. Nebraska and Colorado (No. 220126-ORG)

No. 126, Original

In the Supreme Court of the Gnited States

STATE OF KANSAS, PLAINTIFF

v.

STATE OF NEBRASKA AND STATE OF COLORADO

ON EXCEPTIONS TO THE REPORT

OF THE SPECIAL MASTER

BRIEF OF THE UNITED STATES AS AMICUS CURIAE

IN SUPPORT OF OVERRULING THE PARTIES’ EXCEP-

TIONS TO THE REPORT OF THE SPECIAL MASTER

DONALD B. VERRILLI, JR.

Solicitor General

Counsel of Record

ROBERT C. DREHER

Acting Assistant Attorney

General

EDWIN S. KNEEDLER

Deputy Solicitor General

ANN O’CONNELL

Assistant to the Solicitor

General

KEITH E. SAXE

JAMES DUBOIS

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@ usdoj.gov

(202) 514-2217

QUESTIONS PRESENTED

The United States will address the following ques-

tions:

1. Whether a monetary damages remedy for Ne-

braska’s breach of the Republican River Compact

(Compact), Act of May 26, 1943, ch. 104, 57 Stat. 86,

should include partial disgorgement of the amount by

which Nebraska's gain from the breach exceeds Kan-

sas’s loss. (Nebraska Exception No. 1; Colorado Ex-

ception).

2. Whether the Court should provide Kansas with

specific injunctive relief in the form of an order re-

quiring Nebraska to comply with the Compact and the

parties’ Final Settlement Stipulation (FSS). (Kansas

Exception No. 2.A).

3. Whether the Court should enter an order re-

forming the accounting procedures adopted in the

FSS to correct a mistake identified by Nebraska.

(Kansas Exception No. 1).

(I)

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TABLE OF CONTENTS

Page

Innere I SS Sa NI is sacl saeemmlatlnesinedeip 1

I Sidecar daekeehdehiaccilUiidi esaleseibceiiasiehbcenbbbi eaainateaicedic 2

A. The Republican River Basin .......000....0.0....ccceeeeeees 3

B. The Republican River Compact ....................00008 4

C. Previous litigation and the Final Settlement

REE EERE I ESE ONE Ook eRe ee eT Fe 6

ED. Tete CUT OIE, COMET CV OT onc ccccsccccssccctneseccescscccnsesessees 38

BE ie I weicidisicsidedaieisiencnitetcciisnciectnsitsctniesininiatiniinnstin 16

Argument:

I. It is within the Court’s discretion to award

partial disgorgement in this original action.............. 18

A. The availability of a disgorgement remedy

in appropriate circumstances is important

to ensure compliance with an interstate

compact apportioning the water of an inter-

I i sceesittinticeicanabiiinsienitneninnianinivesitenitininindoniiin 19

B. An award of partial disgorgement is justified

Be He NE siitisicicisliccstespdichenannstiesipdedipnasduanipnaisnansbisanieins 24

Il. The injunctive relief requested by Kansas is

I i iaiicttiidicieccaniedidetiasincnsiaiihasannminntiiriaaieemincseniests 28

III. Itis within this Court’s discretion to reform

the RRCA Accounting Procedures ..................:00000.80

IES Tet ee ea eee NE aPC LINE ND An WON SE AEE RT See t OE 34

TABLE OF AUTHORITIES

Cases:

Harris Trust and Savs. Bank v. Saloman Smith

Barney, (2C., SIO U S. ZEB (BOG) nccccccssesesssccsssscessccccososesseee 23

Kansas v. Colorado, 533 U.S. 1 (2001)..........ccccccceceeee 19, 27

Kansas v. Colorado, 556 U.S. 98 (2009)... cceecceteeeeeeees 19

Mississippi v. Louisiana, 506 U.S. 73 (1992)... cece 30

Nebraska v. Wyoming, 325 U.S. 589 (1945)... ccceeeeeeeeees 21

(IIT)

IV

Cases—Continued: Page

Ohio v. Kentucky, 410 U.S. 641 (19738) coccccccccccccccccecee--- 19

Philippine Sugar Estates Dev. Co. v. Government of

Philippine Islands, 247 U.S. 385 (1918) .ccccccccccccccoceseseeees, 31

Porter v. Warner Holding Co., 328 U.S. 395 (1946) ........... 21

Texas v. New Mewico, 462 U.S. 554 (1983) ....ccccccccccccoceecs-.. 30

Texas v. New Mexico, 482 U.S. 124 (1987) .cccccccccccoceee. passim

Texas v. New Mexico, 494 U.S. 111 (1990) cecccccccccccccccoceceee... 20

Vermont v. New York, 417 U.S. 270 (1974) coccccccccccccceceoceseeest $2

Statutes:

Act of Aug. 18, 1941, ch. 377, 55 Stat. 646 v.occcccccccccccccee-- oe. 4

Act of Aug. 4, 1942, ch. 545, 56 Stat. 736 ...cccccccccccccoceceecc----. 4

Republican River Compact, Act of May 26, 1943, ch.

OP Or PO ite cheneachinccteosecicdatiecciethidersessosstice cig es cs 2

Fs Tg Oe a TF secicttitesilescacbosintcctatiarinietaamenaiatitssteccuise: 4,5

Pee ITT cuistclipandonictatderiestcs cnc cet 15, 31

SR OT IIR I iv cbserccsenstoictencsmnicnonetieecece oa! si ia 5, 16

Pe Mt cniebuitiesiadiussiahateseatalearenaniercceis coca acee cs. 28

ee RE is: WD asin cosocaciblancticnisbolabiotcesevaapabisinacoskasiiieicsie cise tis 28

Colo. Rev. Stat. Ann. §§ 37-67-101 et seq.

ROE iicicnnititanetauithansitaincncbe cameo 4

Kan. Stat. Ann. § 828-518 (1997) ooo cccccccceccssccsscesssseseseseseesesee. 4

2A Neb. Rev. Stat. Appx. § 1-106 (2008) ....cccccccccscccccececececeeees 4

Miscellaneous:

Bureau of Reclamation, U.S. Dep't of the Interior:

Niobrara, Lower Platte, and Kansas River

Basins Annual Operating Plans (2012) ...ccccccccccccocees 6

Project Investigations Report No. 41 (1940) .ccccccccccoccocees 4

Miscellaneous—Continued: Page

Resource Management Assessment: Republican

og tS 8 | ee

HDR Engineering, Inc., Hydrologic Trends and

Correlations in the Republican River Basin in

PE WN ii silrteteliinscisecia neta 22

H.R. Doe. No. 195, 73d Cong., 2d Sess. (1934) v..cccccceececeeeeetd

H.R. Doc. No. 842, 76th Cong., 3d Sess. (1940) oo... 3

Republican River Compact Administration:

First Annual Report for the Year 1960 (1961) ......cccc00000.5

Re I FE CI itrecicdnceiniocretactensecnsivcieseccsisanssic 6

Restatement (Second) of Contracts (1981) ......ccccccceseceeeeee 16

Restatement (Third) of Restitution and Unjust

NNN SUNN Pcicinnsdraridannsdnaisconssoetneeamsnduinacunacete passim

Jn the Supreme Court of the Anited States

No. 126, Original

STATE OF KANSAS, PLAINTIFF

Vv.

STATE OF NEBRASKA AND STATE OF COLORADO

ON EXCEPTIONS TO THE REPORT

OF THE SPECIAL MASTER

BRIEF OF THE UNITED STATES AS AMICUS CURIAE

IN SUPPORT OF OVERRULING THE PARTIES’ EXCEP.-

TIONS TO THE REPORT OF THE SPECIAL MASTER

INTEREST OF THE UNITED STATES

This case presents questions of (i) the appropriate

remedy for Nebraska’s breach of the Republican Riv-

er Compact, Act of May 26, 1943, ch. 104, 57 Stat. 86,

and (ii) whether the Court should reform the account-

ing procedures in the parties’ Fina! Stipulation Set-

tlement (FSS) to correct a mistake identified by Ne-

braska. The United States has a substantial interest

in the proper implementation of interstate compacts

apportioning water in an interstate stream. At the

Court’s invitation, the United States filed a brief at an

earlier stage of these proceedings recommending that

the Court grant Kansas leave to file its petition for

enforcement of the Court’s Decree of May 19, 2003,

which approved the FSS.

(1)

2

STATEMENT

The State of Kansas initiated these proceedings by

filing a petition to enforce against the State of Ne-

braska this Court’s Decree of May 19, 2003, which

approved the Final Settlement Stipulation (FSS)

entered into by Kansas, Nebraska, and Colorado. 538

U.S. 720; see Report of the Special Master (Report)

App. E1-E56. The FSS was the culmination of pro-

ceedings initiated by Kansas in 1998 to enforce its

rights under the Republican River Compact (Com-

pact), which was approved by Congress in the Act of

May 26, 1943, ch. 104, 57 Stat. 86.

This Court granted Kansas leave to file its petition

for enforcement of the Decree and appointed the

Honorable William J. Kayatta, Jr., to serve as the

Special Master. 131 8S. Ct. 1847 (2011). Special Mas-

ter Kayatta has submitted a report that recommends,

in relevant part, that the Court: (1) declare that

Nebraska breached the Compact by consuming a total

of 70,869 acre-feet of water in excess of its Compact

allocation in 2005 and 2006 (Report 2, 89); (2) enter

judgment against Nebraska and in favor of Kansas in

the amount of $5.5 million, $1.8 million of which repre-

sent a partial disgorgement of Nebraska’s gain from

breaching the Compact (id. at 179, 187); (3) deny

Kansas’s request for specific injunctive relief (id. at

187); and (4) order the accounting procedures used by

the States reformed to correct a mistake identified by

Nebraska (id. at 2, 187). Kansas, Nebraska, and Colo-

rado have filed exceptions to the Master’s report. The

United States supports the Master’s report and there-

fore files this brief as amicus curiae in support of

overruling the parties’ exceptions.

3

A. The Republican River Basin

The Republican River Basin is a 24,900-square mile

watershed, approximately 430 miles in length, that

encompasses parts of northeastern Colorado (7700

square miles), southwestern Nebraska (9700 square

miles), and northern Kansas (7500 square miles). The

Republican River originates in Colorado at the junc-

tion of the Arikaree and North Fork Republican Riv-

ers, then flows northeast through the northwest cor-

ner of Kansas. The river crosses into Nebraska near

Haigler, Nebraska, flows east across southwestern

Nebraska, then crosses back into Kansas south of

Hardy, Nebraska. From there, it flows southeasterly

to Junction City, Kansas, where it joins the Smoky

Hill River to form the Kansas River. The Basin con-

tains fertile farmland and typically receives from 18 to

30 inches of precipitation per year. See Bureau of

Reclamation, U.S. Dep’t of the Interior, Resource

Management Assessment: Republican River Basin 3-

6, 43, 44-48 (July 1996) (Resource Management As-

sessment) (a copy of this report was lodged with the

Clerk of the Court in the 1998 proceeding in this case).

During the 1930s, after the Basin had experienced

an extended drought interrupted in 1935 by a danger-

ous and deadly flood, the federal and state govern-

ments examined whether the Republican River's

spring flows could be impounded in reservoirs for

flood control and released in the late summer and fall

for irrigation. See H.R. Doc. No. 842, 76th Cong., 3d

Sess. (1940) (U.S. Army Corps of Engineers (Corps)

preliminary examination of Republican River); see

also H.R. Doe. No. 195, 73d Cong., 2d Sess. 158-186

(1934). Based on the Corps’ recommendations, Con-

gress authorized appropriations to construct the Har-

4

lan County Reservoir for flood control purposes in

Nebraska. See Act of Aug. 18, 1941, ch. 377, 55 Stat.

646.

During that time, the Bureau of Reclamation,

which has primary responsibility for irrigation pro-

jects, also examined the Republican River Basin. See

Bureau of Reclamation, U.S. Dep’t of the Interior,

Project Investigations Report No. 41, at 1-2 (1940).

The Bureau concluded that development of federal

irrigation projects in the Basin would be feasible, 7d.

at A-D (Synopsis), but that no projects should be

constructed until the three States had agreed to an

interstate allocation of the Basin’s water resources.

Id. at 1.

B. The Republican River Compact

With the permission of Congress, see Act of Aug. 4,

1942, ch. 545, 56 Stat. 736, the States conducted com-

pact negotiations, which were completed on December

31, 1942. The state legislatures ratified the proposed

compact. Colo. Rev. Stat. Ann. §§ 37-67-101 et seq.

(West 2010); Kan. Stat. Ann. § 82a-518 (1997); 2A Neb.

Rev. Stat. Appx. § 1-106 (2008). Congress then enact-

ed legislation approving the Compact. Act of May 26,

19438, ch. 104, 57 Stat. 86.

The Compact comprises 11 Articles that allocate

the water supply of the Basin among Colorado, Kan-

sas, and Nebraska. The Compact quantifies the Ba-

sin’s “Virgin Water Supply,” which is defined as “the

water supply within the Basin undepleted by the activ-

ities of man.” Art. II, 57 Stat. 87. The Compact pre-

scribes the specific quantities of the virgin water sup-

ply, in acre-feet per year, that each State is allocated

for “Beneficial Consumptive Use,” which is defined as

“that use by which the water supply of the Basin is

<

»

consumed through the activities of man, * * *

includ[ing] water consumed by evaporation from any

reservoir, canal, ditch, or irrigated area.” /bid.

Article IV sets out the allocation to each State for

each of the Basin’s drainage areas. 57 Stat. 88-89. In

doing so, Article IV allocates the entire estimated

virgin water supply, giving Colorado an aggregate of

54,100 acre-feet per year, Kansas an aggregate of

190,300 acre-feet per year, and Nebraska an aggre-

gate of 234,500 acre-feet per year. /bid. In addition,

Article [V recognizes that Kansas is entitled to “the

entire water supply originating in the Basin down-

stream from the lowest crossing of the river at the

Nebraska-Kansas state line.” Jd. at 88.

In accordance with Article IX of the Compact, 57

Stat. 90, the States formed the Republican River

Compact Administration (RRCA). The RRCA is com-

prised of the chief water official of each State. It

“may, by unanimous action, adopt rules and regula-

tions consistent with the provisions of th{e] compact.”

Ibid. The RRCA computes the Basin’s annual virgin

water supply, which allows the States to determine,

retrospectively, whether each State has stayed within

its allocation. See RRCA, First Annual Report for the

Year 1960 (1961).

Between the late 1940s and the 1960s, seven feder-

al dams and reservoirs were constructed in the Basin

above the Nebraska-Kansas border. Six are Bureau

projects, and Harlan County Reservoir is a Corps

project. The Bureau’s projects, operated in conjunc-

tion with the Corps’ Harlan County facilities, have an

active storage capacity of approximately 450,898 acre-

feet of water and provide water to six irrigation dis-

tricts serving 137,595 acres of farmland in the Basin.

6

See U.S. Bureau of Reclamation, U.S. Dep’t of [nteri-

or, Niobrara, Lower Platte, and Kansas River Basins

Annual Operating Plans Tables 1, 3 (2012).

C. Previous Litigation And The Final Settlement Stipu-

lation

Beginning in the 1980s and continuing into the

1990s, Kansas complained to the RRCA that Nebras-

ka was violating the Compact by allowing increasing

groundwater development that was reducing the in-

flow of water into Harlan County Reservoir. RRCA,

25th Annual Report 7 (1985). Nebraska took the

position that groundwater pumping was not subject to

the Compact.

In 1999, this Court granted Kansas’s motion for

leave to file a bill of complaint against Nebraska and

invited Nebraska to test its theory in a motion to

dismiss. 525 U.S. 1101; 527 U.S. 1020. The Court

referred the ensuing motion to a Special Master. 528

U.S. 1001 (1999). The Master recommended that

Nebraska’s motion be denied, concluding that the

Compact encompassed groundwater withdrawals that

impacted the virgin water supply. See First Report of

the Special Master (Subject: Nebraska’s Motion to

Dismiss), in No. 126, Orig. (Jan. 28, 2000). The Court

denied Nebraska’s Motion to Dismiss. 530 U.S. 1272

(2000).

The States then began negotiations to resolve the

remaining issues in the suit. Following more than a

year of additional negotiations, the States entered into

the FSS. See Report App. £1-E56.

The FSS incorporates procedures to calculate the

virgin water supply and each State’s allocation, and

it establishes each State’s requirements for Compact

compliance. Report App. E25-E47. Under the FSS,

7

Nebraska’s compliance requirements include: (1) a

five-year running-average test limiting Nebraska's

beneficial consumptive use to no more than its

statewide allocation, FSS Art. [V.D, Report App. E34;

and (2) during water-short periods (Water-Short Year

Administration), an additional two-year or three-year

running-average test limiting Nebraska’s beneficial

consumptive use above Guide Rock, Nebraska to no

more than Nebraska’s allocation above Guide Rock

plus its share of any unused portion of Colorado’s

allocation. FSS Art. V.B, Report App. E37-E44.

Water-Short Year Administration is in effect in those

years in which the projected or actual irrigation sup-

ply is less than 119,000 acre-feet of storage available

for use from Harlan County Reservoir. FSS Art.

V.B.1, Report App. E37-E38.

The FSS includes dispute-resolution provisions

that require the States to submit their disputes to the

RRCA for resolution. FSS Art. VII.A, Report App.

E£47-E50. If the RRCA cannot reach consensus, the

parties may submit the dispute to non-binding arbi-

tration under Article VII.B. FSS Art. VI1I.A.7, Report

App. E49-E50. This Court approved the FSS in a

decree dated May 19, 2003. 538 U.S. 720. In that

same decree the Court ordered the dismissal with

prejudice of all claims, counterclaims, and cross-

claims that had been brought or could have been

brought prior to December 15, 2002, effective upon

filing by the Special Master of a final report certifying

adoption of a RRCA Groundwater Model by the par-

ties. /bid.

Through six months of additional technical work

and negotiations, the States reached agreement on the

RRCA Groundwater Model, which is a model for cal-

8

culating the impacts of groundwater pumping and

depletions in each State. See Final Report of the

Special Master with Certificate of Adoption of RRCA

Groundwater Model, in No. 126, Orig. (Sept. 17, 2003);

540 U.S. 964 (2003) (noting filing of Final Report).

The Groundwater Mode! is administered according to

the RRCA Accounting Procedures, which are part of

the FSS.

D. The Current Controversy

1. By 2007, several disputes had arisen among the

States concerning compliance with the FSS. Nebras-

ka overused its Compact allocation in 2003, and thus

knew that it would need to underuse in the following

years to satisfy the first five-year running average

test. Report 108. Nebraska again exceeded its Com-

pact allocation in 2004 and 2005, and it faced an added

challenge in 2006 because that year was designated as

a water-short accounting year and thus triggered the

application of a two-year water-short accounting peri-

od for 2005-2006. Jd. at 108-109; see FSS Art. V.B,

Report App. E37-E44. Kansas asserted that Nebras-

ka overused its allocation during the two-year ac-

counting period by a total of approximately 79,000

acre-feet, in violation of the Compact and the FSS.

Kan. Pet. for Enforcement 9-10. Nebraska, in re-

sponse, identified errors in the Accounting Procedures

that prevented an accurate accounting of each State’s

allocation by as much as 10,000 acre-feet per year, and

asserted that those errors should be corrected before

the parties could determine the extent of Nebraska’s

violation. Neb. Br. in Resp. 8-9, 24.

As required by Article VII.A of the FSS, the States

presented these issues to the RRCA, but the RRCA

could not reach a consensus on either issue. The

9

States then submitted their claims to non-binding

arbitration pursuant to Article VII.A.7 of the FSS.

Neb. Br. in Resp. App. 79-108 (arbitrator’s final deci-

sion on damages); Arbitrator’s Final Decision on Ne-

braska Crediting Dispute, https://www.agriculture.ks.

gov/doces/default-source/iwi---republican-river-compac

t/2010 10 07 pagel decision_nebraska crediting.pdf?

sfvrsn=2. The States rejected the arbitrators’ rec-

ommendations.

2. Having exhausted the FSS’s alternative dispute

resolution requirements, Kansas filed a motion in this

Court for leave to file a petition for enforcement of the

Court’s Decree of May 19, 2003, which had approved

the FSS. Kansas sought an order adjudging Nebras-

ka in contempt of the Decree and retrospective mone-

tary damages in the form of disgorgement of Nebras-

ka’s profits. Kan. Pet. for Enforcement 11-12. Kansas

also sought prospective relief, including: an order

enjoining Nebraska from future violations and impos-

ing preset sanctions for noncompliance, an order re-

ducing groundwater pumping in Nebraska to a level

sufficient to ensure Nebraska’s future compliance, and

appointment of a river master. /d. at 12.

The Court granted Kansas leave to file its petition

and referred the case to Special Master Kayatta. 131

S. Ct. 1847 (2011). Before the Special Master, Ne-

braska asserted a counterclaim seeking an order that

would modify the Accounting Procedures to eliminate

an error that allows water imported into the Basin as

a result of man-made diversions from the Platte River

Basin to be incorrectly treated as part of the Republi-

can River Basin’s virgin water supply, and thus im-

properly counted toward Nebraska’s “Computed Ben-

10

eficial Consumptive Use” under the Groundwater

Model. Report 11, 15.

3. The Master conducted hearings and received

briefs and arguments on the parties’ claims. Peport 1,

10-14. On November 13, 2013, the Master issued a

report containing his recommendations.

a. The Master concluded that Nebraska had

breached the Compact by consuming a total of 70,869

acre-feet of water in excess of its Compact allocation

in 2005 and 2006, the first water-short accounting

period. Report 2, 89; see Neb. Excp. Br. 7 (accepting

that conclusion). Turning to the remedy for Nebras-

ka’s breach, the Master noted that “all three states

agree that the remedy should be in dollars.” Report

129. He recommended that the Court enter a judg-

ment against Nebraska and in favor of Kansas in the

amount of $5.5 million. Jd. at 187.

The Master reviewed the evidence presented by

the parties and concluded that $3.7 million was “a fair

estimate” of Kansas’s loss. Report 138; see id. at 136-

172. He further concluded that the evidence showed

that an acre-foot of water was substantially more

valuable on-farm in Nebraska than it was in Kansas,

and that “Nebraska’s gain was therefore very much

larger than Kansas’ loss, likely by more than several

multiples.” /d. at 178. In light of that conclusion, the

Master considered whether any part of Nebraska's

gain should be disgorged as part of Kansas’s mone-

tary remedy.

The Master explained that, following adoption of

the FSS, “Nebraska failed to act either promptly or

effectively in enacting intrastate rules that would limit

consumption of the Basin’s virgin water supply to the

amounts allowed under the Compact.” Report 107.

11

The Master stated that the first Integrated Manage-

ment Plans (IMPs) developed by the Nebraska De-

partment of Natural Resources and Nebraska’s Natu-

ral Resource Districts (NRDs) were “clearly not suffi-

cient, either in timing or substance,” in that they did

not go into effect until 2005 and required only a 5%

reduction in groundwater pumping. /d. at 107-108.

The Master further explained that “[mjuch of Ne-

braska’s struggle with compliance” arose from the

state legislature’s decision to maximize local control

over groundwater resources without providing any

mechanism to hold local irrigators responsible for

overuse. /d. at 110. The Master acknowledged that

Nebraska had some “bad luck” due to dry years be-

tween 2002 and 2006, but he explained that “prior

experience rendered it foreseeable that there would

likely be both dry and wet periods, and Nebraska took

steps adequate, at most, only for the latter.” /d. at

107-110.

The Master noted that Nebraska had taken steps

by 2006 to reduce the extent of its noncompliance by

reducing groundwater pumping, purchasing surface

water, using voluntary programs for retiring acreage

from irrigation, and reducing allocations for ground-

water irrigators, although “[t]he net result of these

efforts * * * fell woefully short.” Report 109, 111.

Because of those efforts, the Master concluded that

Nebraska had not deliberately breached the Compact.

Id. at 111, 130-131. But the Master concluded that

“Nebraska knowingly exposed Kansas to a substantial

risk that Nebraska’s compliance measures would not

ensure compliance if the weather did not cooperate.”

Id. at 130; id. at 112 (“Nebraska hoped to comply, but

knowingly failed.”).

12

The Master acknowledged that disgorgement is

typically awarded only in cases of “deliberate” breach,

as an alternative to a traditional damages award re-

flecting the injured party’s reasonably foreseeable

loss. Report 130. But the Master concluded that

partial disgorgement is nevertheless warranted here.

He explained that the States’ rights to water of an

interstate stream “are in some respects similar to

rights in real property,” and “{alctions involving the

taking of real property * * * routinely apply dis-

gorgement as the measure of damages.” /d. at 131-

132 (citing Restatement (Third) of Restitution and

Unjust Enrichment § 40 (2011)). The Master further

explained that “the Compact is a law of the United

States,” and “[ajctions arising out of a breach of statu-

tory law often employ measures of damages aimed at

divesting the wrongdoer of any gains derived from the

statutory violation.” /d. at 132.

Against this background, the Master reasoned that

the Court is not required to “make an either-or selec-

tion between the measures of loss and gain” and that

the Court should “look at loss and gain as end points

on a spectrum of damages, and then * * * calibrate

the selection of a fair point on that spectrum.” Report

135. He ultimately concluded that the Court should

award an additional $1.8 million to Kansas, which

“represents a disgorgement of a small portion of the

amount by which Nebraska’s gain exceeds Kansas’s

loss” and “moves substantially towards turning the

actual recovery by Kansas, net of reasonable transac-

tion costs, into an amount that approximates a full

recovery for the harm suffered.” /d. at 179; Errata to

Report (Errata) (Nov. 19, 2013).

13

The Master concluded that disgorgement beyond

$1.8 million was unnecessary based on Nebraska’s

substantial efforts after 2006 to mitigate its noncom-

pliance and to ensure future compliance. Report 179.

The Master explained that in 2007, Nebraska

“turnf(ed] over a new leaf” by enacting legislation

requiring the adoption of a mechanism for mandatory

annual forecasts to help the NRDs stay within their

compliance allocations, and that Nebraska has now

developed third-generation IMPs that (i) provide for

a reduction of surface water use during forecasted dry

years; (ii) increase the groundwater pumping reduc-

tion from 5% to 25%; and (iii) affirmatively require

each NRD to reduce consumption by the amount of its

proportionate responsibility for maintaining Nebras-

ka’s compliance with the Compact, reinforced by a

mandatory shut-down of groundwater pumping in a

designated Rapid Response Region if adequate action

is not taken. /d. at 113-114, 180. The Master deter-

mined that “the case is compelling that the current

IMPs will be effective to maintain compliance even in

extraordinarily dry years,” id. at 118, but that

“ts|hould Nebraska not manage to employ its new

IMPs with the efficacy claimed,” the Court “should

make clear” that further disgorgement would be or-

dered. /d. at 180.

b. The Master concluded that the specific injunc-

tive relief requested by Kansas is not warranted.

Report 180-186. The Master explained that Kansas

had not shown that an injunction is necessary to pre-

vent future violations because “the record falls short

of establishing that the current IMPs, if followed

conscientiously, are not capable of ensuring Nebras-

ka’s compliance going forward.” /d. at 182. The Mas-

14

ter also pointed out that “[ujJnder the reasoning of

[his] Report, Nebraska's incentive to extend its recent

record of strong compliance should be increased by its

knowledge that, in the event of a relapse after this

date, Nebraska will have a difficult time parrying a

request for disgorgement even in the absence of a

deliberate breach.” /d. at 183.

The Master separately rejected Kansas’s request

that Nebraska be held in contempt of the Court’s

Decree of May 19, 2003, which approved the FSS.

Report 99-103. The Master explained that there was

“no language in the actual Decree ordering any party

to comply with either the Compact or the FSS,” id. at

99, and that “li]f Nebraska is to be held liable in this

action, it must be held liable for violating the Compact

as interpreted and implemented by the FSS, not for

violating any court order.” /d. at 101.

ec. The Master further concluded that the Account-

ing Procedures should be reformed to correct the

error identified by Nebraska. Report 19-71. In its

counterclaim, Nebraska contended that in dry condi-

tions, the Accounting Procedures, which were adopted

by the parties to administer the Groundwater Model

used to calculate the impacts of groundwater pumping

in each State, “mistakenly treat the consumption of

imported water in some circumstances as if it were the

consumption of virgin water supply of the Basin.” /d.

at 22. Nebraska contended that this error caused the

Groundwater Model to erroneously increase the calcu-

lation of Nebraska’s consumption of the virgin water

supply in a way that was “contrary to the parties’

shared intent in agreeing to the Accounting Proce-

dures, and to the Compact.” /d. at 22, 32.

15

The Master agreed. Report 32-37. The Master ex-

plained that the Compact was intended only to divide

the virgin water supply “originating in” the Basin,

Art. II], 57 Stat. 87, and that the FSS explicitly states

that consumption of imported water “shall not count

as Computed Beneficial Consumptive Use or Virgin

Water Supply” for purposes of the Accounting Proce-

dures, FSS Art. IV.F, Report App. E35. See Report

23-24. But, the Master noted, the Accounting Proce-

dures nevertheless count imported water as part of

the Basin’s virgin water supply in some circumstances

because of an interaction between two factors.

First, under the Compact and the FSS, groundwa-

ter pumping counts as consumption only to the extent

that it depletes stream flow. Report 34. If the stream

were to run dry, however, further groundwater pump-

ing would not cause any stream flow depletion. J/bid.

In other words, “stream flow * * * fall{s} as

groundwater pumping increases until it hits zero, at

which point it falls no more even as groundwater

pumping continues.” J/bid. Second, imported water

can create stream flow in a dry riverbed. Jbid. The

Accounting Procedures, the Master explained, do not

eliminate that effect before running the simulation in

those conditions, which can lead the Groundwater

Model to include imported water in its computation of

each State’s beneficial consumptive use of the virgin

water supply. /d. at 35. The Master found that Ne-

braska had shown this was the case “quite convincing-

ly.” Ibid. Colorado agreed that the Accounting Pro-

cedures should be changed to correct this problem,

but Kansas did not. /d. at 22. Because the procedures

cannot be changed without the unanimous consent of

16

the parties, see Compact Art. IX, 57 Stat. 90, Nebras-

ka requested relief from this Court. Report 22-23.

The Master concluded that the Accounting Proce-

dures should be reformed to correct the problem Ne-

braska had identified. Report 37-54. The Master

explained that equitable reformation of a contract is

appropriate where the writing “fails to express the

agreement because of a mistake of both parties as to

the contents or effect of the writing.” J/d. at 43 (citing

Restatement (Second) of Contracts § 155 (1981)). The

Master found that Nebraska had clearly established

that the parties did not intend for the Accounting

Procedures to treat imported water as part of the

virgin water supply, and that the current Accounting

Procedures “nevertheless have exactly this unintend-

ed effect under some circumstances.” /bid. The Mas-

ter determined that a simple solution proposed by

Nebraska (included as Appendix F to the Report)

solves the problem by assuming, before the Ground-

water Model is run to calculate each State’s ground-

water usage, that Nebraska does not import water

into the Basin. Report 55-56. The Master concluded

that the reformed procedures should be applied from

2007 forward. /d. at 69-71.

SUMMARY OF ARGUMENT

{. This Court has broad discretion to provide a

“fair and equitable solution” for the breach of an in-

terstate compact governing the apportionment of an

interstate river. Texas v. New Merico, 482 U.S. 124,

134 (1987). A damages award that includes partial

disgorgement of the breaching party’s gain falls with-

in that broad discretion. If damages for breach of an

interstate compact were strictly limited to the injured

State’s reasonably foreseeable loss, that would give

17

rise to special concerns about “efficient breach” in the

context of interstate compacts: In circumstances

where water can be put to greater beneficial use in an

upstream State, that State would have no incentive to

prevent a breach of the compact, because it would

benefit from using the water upstream and paying the

downstream State the lower value of its loss. Espe-

cially in cases in which the remedy of specific perfor-

mance of the obligation to deliver water is not feasible,

disgorgement can provide an appropriate additional

measure to discourage such a breach.

Moreover, when a State breaches an ongoing obli-

gation under an interstate compact, disgorgement can

help stabilize the relationship under the compact and

ensure that the injured State’s entitlement to water is

adequately protected. Such a remedy can also be

important to ensure that federal irrigation projects

have adequate surface flow to operate. Furthermore,

disgorgement is a recognized remedy where one party

interferes with the property rights of another, and

where a party obtains a benefit by breaching a trust

relationship. Those scenarios are analogous to Ne-

braska’s use of water in excess of its allocation under

the Compact and the FSS.

The Master’s recommendation to award partial

disgorgement based on what he found to be Nebras-

ka’s knowing exposure of Kansas to the risk of a

breach of the Compact rests on a thorough evaluation

of the relevant considerations of fairness and justice.

At the same time, the Master’s conclusion that full

disgorgement is unwarranted in light of evidence

showing that Nebraska has positioned itself to ensure

compliance going forward is also well supported.

18

Il. The Master’s conclusion that the specific in-

junctive relief requested by Kansas is not warranted

should be upheld. Kansas has requested an order of

this Court that would require Nebraska to comply

with the Compact and the FSS. In light of Nebraska’s

recent efforts to ensure future compliance, the Master

was justified in concluding that such injunctive relief

is not warranted.

III. It is within this Court’s equitable authority to

reform the Accounting Procedures to correct the

mistake that Nebraska has identified. The Master

found (and Kansas does not dispute) that in dry condi-

tions, the Accounting Procedures sometimes treat

Nebraska’s consumption of imported water within the

Basin as if it were consumption of the virgin water

supply. Yet the parties explicitly agreed in the FSS

that consumption of imported water would not count

toward the calculation of a State’s consumption of the

virgin water supply. FSS Art. [V.F, Report App. E35.

The Master found that the parties were not aware

that the Accounting Procedures had this effect, and

that the error was not accepted in exchange for other

benefits conferred on Nebraska. Based on those find-

ings, reformation is appropriate to bring the Account-

ing Procedures into line with a basic premise underly-

ing the Compact and the parties’ agreement in the

FSS.

ARGUMENT

I. ITIS WITHIN THE COURT'S DISCRETION TO AWARD

PARTIAL DISGORGEMENT IN THIS ORIGINAL AC-

TION

Nebraska (Exep. Br. 10-16) and Colorado (Exep.

Br. 4-11) have filed exceptions to the Master’s recom-

mendation that Nebraska should be ordered to pay

19

$1.8 million—in addition to Kansas’s actual damages

of $3.7 million—as “a disgorgement of a small portion

of the amount by which Nebraska’s gain exceeds Kan-

sas’s loss.” Report 179; Errata. An award of partial

disgorgement is within the Court’s broad discretion.

A. The Availability Of A Disgorgement Remedy In Ap-

propriate Circumstances Is Important To Ensure

Compliance With An Interstate Compact Apportion-

ing The Water Of An Interstate Stream

The Court’s jurisdiction in interstate compact dis-

putes is “basically equitable in nature.” Ohio v. Ken-

tucky, 410 U.S. 641, 648 (1973). In developing a reme-

dy for breach of a compact, the Court has broad dis-

cretion to provide a “fair and equitable solution that is

consistent with the Compact terms.” Texas v. New

Mexico, 482 U.S. 124, 134 (1987). The Court’s discre-

tion is exercised “according to settled principles of

equity, but not arbitrarily and capriciously, and al-

ways with reference to the facts of the particular

case.” Jd. at 131 (citation omitted).

1. The Court, in Texas v. New Mevico, stated that

money can be an appropriate remedy for breach of an

interstate compact for the delivery of water. 482 U.S.

at 130. In a previous case, damages for such a breach

have been awarded based on the injured party’s rea-

sonably foreseeable loss. See Second Report of Ar-

thur Littleworth, Special Master 80, in Kansas v.

Colorado, No. 105, Orig. (Sept. 9, 1997) (Littleworth

Report); 533 U.S. 1, 6, 20 (2001) (noting the Special

Master’s recommendation that damages be measured

by Kansas’s loss rather than Colorado’s profits, over-

ruling unrelated objections, and remanding for calcu-

lation of damages); see also 556 U.S. 98, 103 (2009)

(final judgment). The Court has left open, however,

20

the possibility that disgorgement of the breaching

party's gain may be awarded as a remedy for breach

in an appropriate case.

In Texas v. New Mexico, the Court responded to

the concern that money damages may be an inade-

quate remedy for breach of an interstate compact

apportioning water because the remedy would permit

an upstream State “to ignore its obligation to deliver

water as long as it is willing to suffer the financial

penalty.” 482 U.S. at 182. The Court concluded that

the concern was insubstantial “in light of the authority

to award remedying shortfalls to be made up in kind,

with whatever additional sanction might be thought

necessary for deliberate failure to perform.” J/bid.;

see also Littleworth Report 80-82 (explaining that

although Kansas’s damages should be limited to the

State’s reasonably foreseeable loss based on the facts

of that case, there is “no doubt about the power of

equity to provide complete relief, perhaps even look-

ing to upstream gain under appropriate circumstanc-

es”). After the Court clarified that money damages

were an appropriate remedy, the parties settled the

dispute for $14 million. 494 U.S. 111, 111 (1990).

The incentive for an “efficient breach,” which would

exist in cases where water can be put to greater bene-

ficial use in an upstream State, as the Master conclud-

ed was the case here (Report 178), is a cause for spe-

cial concern in the context of interstate compacts

apportioning water. If the remedy for anything less

than a deliberate breach is strictly limited to the

downstream State’s reasonably foreseeable loss, then

the upstream State may lack a sufficient incentive to

work diligently to prevent a breach, “as long as it is

21

willing to suffer the financial penalty.” Texas v. New

Merico, 482 U.S. at 132.

Although the continued availability of specific per-

formance through an order to make up for a shortfall

in kind may alleviate this concern to some extent, a

remedy in the form of water is not always feasible.

See Texas v. New Mexico, 482 U.S. at 131-132. In this

case, for example, the Master explained that such a

remedy would raise difficult questions about the tim-

ing and location of any requirement to deliver water.

Report 129. In cases where specific performance is

not appropriate, disgorgement can provide a suitable

“additional sanction” designed to discourage contin-

ued breach. Texas v. New Mexico, 482 U.S. at 132;

see Porter v. Warner Holding Co., 328 U.S. 395, 400

(1946) (“Future compliance may be more readily as-

sured if one is compelled to restore one’s illegal

gains.”).

2. It is also relevant that a case such as this in-

volves an ongoing agreement between States to limit

their use of water to an agreed-upon amount and thus

for the upstream State to deliver to the downstream

State its allocated share. In such cases, disgorgement

of the breaching party’s gain can serve to “reinforce

the stability of the contract.” See Restatement

(Third) of Restitution and Unjust Enrichment § 39,

emt. b. Moreover, as the Master recognized (Report

131), States agree to apportion the water of an inter-

state steam based on the premise that each State has

a sovereign right to use a portion of the water. See,

e.g., Nebraska v. Wyoming, 325 U.S. 589, 617 (1945).

If damages were strictly limited to the injured State’s

loss, thereby allowing for an efficient breach on an

ongoing basis, that remedy may “afford inadequate

22

protection to the promisee’s contractual entitlement”

to water. See Restatement (Third) of Restitution and

Unjust Enrichment § 39. Those circumstances can

thus justify a disgorgement remedy when it is neces-

sary to ensure compliance with an interstate compact.

Concerns about an upstream State’s failing to abide

by an obligation under an interstate compact, which is

an Act of Congress, are reinforced where water from

the interstate stream supports irrigation projects that

are authorized by other Acts of Congress and depend

on surface water flows to function. Decline in irriga-

tion water supply can cause water users to default on

repayment and water-supply contracts with the Unit-

ed States, thus potentially reducing revenues needed

to repay project costs associated with those contracts.

Further, if the Bureau cannot exercise its state-law

water rights to provide a water supply to irrigation

districts as required by its repayment contracts, those

water rights could be injured. In addition to these

risks, a decline in water supply can harm fish, wildlife,

and recreation in federal reservoirs, thereby reducing

the ability of the Bureau and the Corps to furnish the

full range of benefits envisioned by Congress.

Those concerns are present in the Republican Riv-

er Basin. Surface water flows into the Basin have

declined significantly since the mid-1960s, and inflows

to federal reservoirs in the Basin have declined steadi-

ly. Resource Management Assessment, 13-15. The

decline in surface flow is strongly correlated with the

increase of groundwater-well development in Nebras-

ka. HDR Engineering, Inc., Hydrologic Trends and

Correlations in the Republican River Basin in Ne-

braska, 1-14 (June 2006) (prepared for Neb. Dep’t of

Natural Resources).

23

3. Disgorgement is also a recognized remedy

where one party interferes with the property interests

of another. Restatement (Third) of Restitution and

Unjust Enrichment § 40 cmt. b, § 51(4). When inter-

ference with property is at stake and restitution takes

the form of a money judgment, the measure of recov-

ery “depends on the blameworthiness of the defend-

ant’s conduct,” id. § 40 emt. b, and conscious wrong-

doers (i.e., those who act “despite a known risk that

the conduct in question violates the rights of the

claimant,” 7d. § 51(3)) may be “stripped of gains from

unauthorized interference with another’s property,”

id. § 40 emt. b. As the Master explained (Report 131-

132), in practical terms, “one might fairly say that

Nebraska took Kansas’ water.”

Furthermore, disgorgement is a recognized reme-

dy against a party who obtains a benefit by breaching

a fiduciary relationship. See Restatement (Third) of

Restitution and Unjust Enrichment § 43. Where a

fiduciary gains an advantage from the breach, “[a]ny

such advantage must be given up to the beneficiary.”

Id. emt. b; see Harris Trust and Savs. Bank v. Salo-

mon Smith Barney, Inc., 5380 U.S. 238, 250 (2000)

(where trustee in breach of fiduciary duty transfers

trust property to a third person, the beneficiary may

maintain an action against the transferee for dis-

gorgement of proceeds (if the property was disposed

of) so long as the transferee knew or should have

known that the trustee was in breach of his duties).

Under an interstate compact, an upstream State is in

some respects in a position analogous to that of a

fiduciary that is charged by the compact with ensuring

that an adequate amount of water in its possession

flows to a downstream State.

24

Based on these considerations, the Court in an ap-

propriate case may order partial disgorgement of an

upstream State’s gain “according to settled principles

of equity.” Texas v. New Mevrico, 482 U.S. at 131

(citation omitted).

B. An Award Of Partial Disgorgement Is Justified In

This Case

The Master concluded in this case that disgorge-

ment of “a small portion of the amount by which Ne-

braska’s gain exceeds Kansas’s loss” is justified as a

remedy to Kansas for Nebraska's breach. Report 179;

Errata. The Master explained in detail how Nebras-

ka, after adoption of the FSS, “failed to act either

promptly or effectively in enacting intrastate rules

that would limit consumption of the Basin’s virgin

water supply to the amounts allowed under the Com-

pact.” Report 107. The Master recounted how the

initial IMPs developed by the Nebraska Department

of Natural Resources and the NRDs were “clearly not

sufficient, either in timing or substance,” to ensure

Nebraska’s compliance, and that the Nebraska legis-

lature ceded too much control over groundwater re-

sources to local irrigators without sufficient oversight.

Id. at 107-110.

The Master concluded that the result of those defi-

ciencies was to “knowingly expose[] Kansas to a sub-

stantial risk that Nebraska’s compliance measures

would not ensure compliance if the weather did not

cooperate.” Report 130. In the Master’s judgment, a

modest disgorgement award would provide an appro-

priate signal to Nebraska that future violations would

not be acceptable. /d. at 180, 183 (explaining that the

reasoning of the Report should increase “Nebraska's

25

incentive to extend its recent record of strong compli-

ance”).

The nature of the Court’s original jurisdiction and

its broad discretion in formulating fair and equitable

remedies in such cases, see Texas v. New Mevico, 482

U.S. at 130-131. permits the Court to fashion an ap-

propriate remedy, including an award of partial dis-

gorgement. The Master’s recommendation to award

partial disgorgement is based on a thorough evalua-

tion of the relevant considerations of fairness and

justice.’

2. a. Nebraska and Colorado contend that dis-

gorgement is not an appropriate remedy absent “ne-

farious intent” to violate the Compact (Neb. Excp. Br.

8) or a “callous and deliberately opportunistic” breach

(“>lo. Exep. Br. 7). But disgorgement can be appro-

priate even where the breaching party’s actions fall

short of bad faith. Disgorgement is typically available

against a “conscious wrongdoer,” which includes a

defendant who has been enriched by misconduct and

who acts “(a) with knowledge of the underlying wrong

to the claimant, or (b) despite a known risk that the

conduct in question violates the rights of the claim-

ant.” Restatement (Third) of Restitution and Unjust

' The United States does not urge that $1.8 million is precisely

the right amount of disgorgement. But the Master was justified in

awarding some amount of disgorgement in light of his careful

balancing of the equities at stake. The Master’s analysis of the

equities justifying a modest disgorgement should satisfy the Court

that the approval of $1.8 million would not reflect an exercise of

equitable discretion that is “arbitrar[y] [or] capricious ],” Teras v.

New Merico, 482 U.S. at 131 (citation omitted), especially in light

of the cost and burden of additional proceedings before the Master

to further consider and explain that amount. Indeed, neither party

proposes a remand of the matter to the Master for that purpose.

26

Enrichment § 51(3). The Master’s conclusions about

Nebraska's compliance efforts prior to 2007 (Report

111-112, 136) fall within that ambit of discretion.”

The provision of the Restatement addressing “op-

portunistic breach” provides that disgorgement is

warranted where there has been a “deliberate” breach

that results in profit to the defaulting promisor and

where a traditional damages remedy is inadequate to

protect the injured party’s contractual entitlement.

Restatement (Third) of Restitution and Unjust En-

* Nebraska has filed an exception to the Master’s determination

that Nebraska “knowingly failed” to comply with the Compact.

See Neb. Exep. Br. 16-19 (Nebraska Exception No. 2). Nebraska

contends (id. at 17) that the years leading up to the violation of the

FSS in 2006 (the end of the first two-year water-short accounting

period) presented conditions of unprecedented drought. The

Master appropriately observed, however, that the Compact specif-

ically contemplates that there would be wet and dry years, and

that Nebraska had made inadequate plans to remain within its

Compact allocation when the amount of available water was low.

Report 107-109. Nebraska further contends (Excp. Br. 18-19) that

because the Accounting Procedures call for retrospective account-

ing of beneficial consumptive use, it is “literally impossible for [a

State] to know its Compact compliance status until the following

year.” The Master thoroughly explained, however, that Nebraska

exceeded its Compact allocation in every year beginning in 2003;

that it did not take adequate steps to balance such overuse in

succeeding years as would be necessary to satisfy the five-year

running average test; and that at the very least Nebraska “knew it

had not taken the steps it needed to take in order to underuse

* * * [in] a water-short year,” which triggers a more immedi-

ate two-year compliance test. Report 108-109. Accordingly, the

Master’s conclusion (id. at 130) that Nebraska “knowingly exposed

Kansas to a substantial risk that Nebraska’s compliance measures

would not ensure compliance if the weather did not cooperate” is

well supported.

27

richment § 39. But the commentary makes clear that

the restriction to cases of “deliberate” breach is meant

to “excludfe] cases in which breach results from the

defendant’s inadvertence, negligence, or unsuccessful

attempt at performance,” and is “consistent with the

general principle that disgorgement remedies in resti-

tution are principally addressed to instances of con-

scious wrongdoing.” /d. emt. f. Moreover, the Court’s

discretion to provide “a fair and equitable solution

that is consistent with the Compact terms” is broad

enough to include a modest amount of disgorgement

based on the knowing creation of a significant risk of a

violation of the Compact. Texas v. New Mexico, 482

U.S. at 134.

b. Kansas contends (Exep. Br. 53-54) that the full

amount of Nebraska’s gain should be disgorged to

eliminate the possibility of profit from wrongdoing.

The Master explained in detail Nebraska’s attempts,

although they fell “woefully short,” to come into com-

pliance by 2006, Report 109-111, and he was satisfied

that Nebraska's legislative overhaul beginning in 2007

presented a “compelling [case] that the current IMPs

will be effective to maintain compliance even in ex-

traordinarily dry years,” id. at 113-114, 118, 180.

Based on those efforts, the Master appropriately

concluded that an order requiring disgorgement of the

full amount of Nebraska’s gain was not required. See

Texas v. New Mexico, 482 U.S. at 131 (Court’s discre-

tion to award an equitable remedy must be exercised

with “with reference to the facts of the particular

case”); Kansas v. Colorado, 533 U.S. at 14 (concluding

that the Master had “acted properly in carefully ana-

lyzing the facts of the case and in awarding only as

28

much prejudgment interest as was required by a bal-

ancing of the equities”).

Kansas suggests (Exep. Br. 56-59) that if full dis-

gorgement is not awarded, then treble damages ($11.1

million, representing three times Kansas’s actual loss

of $3.7 million) would be appropriate. But damages

are not typically trebled absent specific statutory

authority for that type of award, see, e.g., 18 U.S.C.

1964(c) (RICO); 15 U.S.C. 15 (Clayton Act), and the

Master appropriately concluded that, based on Ne-

braska’s demonstrated efforts to come into compliance

and to work diligently toward compliance in the fu-

ture, disgorgement of only a relatively small portion

of Nebraska’s gain is warranted at this time.

ce. Colorado contends (Excep. Br. 9-11) that any dis-

gorgement would result in a “windfall” to Kansas.

That argument should be rejected. It is a basic fea-

ture of the remedy of disgorgement that “a claimant

potentially recovers more than a provable loss so that

the defendant may be stripped of a wrongful gain.”

Restatement (Third) of Restitution and Unjust En-

richment § 3, emt. a. Disgorgement is designed to

ensure that the breaching party does not receive a

windfall by “profit[ing] by his own wrong.” /d. § 3.

The award of a modest disgorgement award in this

case would serve to discourage continued breach by

Nebraska and falls within this Court’s broad discre-

tion to provide a fair and equitable remedy for Ne-

braska’s breach of the Compact.

Il. THE INJUNCTIVE RELIEF REQUESTED BY KAN-

SAS IS NOT WARRANTED

Kansas has filed an exception (Kan. Exep. Br. 36-

44) to the Master’s conclusion that, in light of the

evidence showing that Nebraska had positioned itself

29

to ensure compliance with the Compact going forward,

the injunctive relief requested by Kansas is not war-

ranted. See Report 180-186. Kansas contends (Exep.

Br. 37) that the Court should order Nebraska to com-

ply with the Compact and the FSS. In Kansas’s view

(id. at 36-38, 43-44), such an order is justified so that

Kansas may seek contempt sanctions against Nebras-

ka for any future violations of the Compact (because

Nebraska would be violating the Court’s order), in-

stead of requesting leave to file a new complaint that

the Court might, in its discretion, decline to accept."

The Master’s conclusion that injunctive relief

would not “add anything meaningful to the mix” was

justified. Report 183. Although Kansas expresses

skepticism about Nebraska’s future compliance, Ne-

braska demonstrated to the Master’s satisfaction that

its efforts to come into compliance with its Compact

obligations are serious. /d. at 113-114, 179-180. The

partial disgorgement award recommended by the

Master will serve to reinforce that assurance. /d. at

183.

Nebraska is required to comply with the Compact

and the FSS without an order of this Court. Kansas

can obtain damages from Nebraska for any future

violations either through a settlement, or through

further proceedings that this Court deems appropri-

ate for an exercise of its original jurisdiction. See

* That is the approach Kansas took in this case. Instead of filing

a motion for leave to file a complaint against Nebraska, Kansas

filed a motion for leave to file a petition to enforce the Court’s

Decree of May 19, 2003, which approved the FSS. See Kan. Pet.

for Enforcement 3-13. The Maser rejected that request, conclud-

ing that the Decree itself imposed no obligations on the parties.

See Report 99-103.

30

Mississippi v. Louisiana, 506 U.S. 73, 76-77 (1992)

(stating that the Court’s jurisdiction is “obligatory

only in appropriate cases” and requires an examina-

tion of “the nature of the interest of the complaining

State” and the “seriousness and dignity of the claim”)

(citation omitted); Texas v. New Mexico, 462 U.S. 554,

575 (1983) (encouraging States to resolve disputes

through settlement). The Master properly concluded,

based on the evidence before him, that an additional

order requiring Nebraska to comply with the Compact

and the FSS, which Kansas views as a mechanism for

more direct access to this Court in the event of a fu-

ture breach (Exep. Br. 36-37), is not warranted at this

time.

Itt. If IS WITHIN THIS COURT’S DISCRETION TO RE-

FORM THE RRCA ACCOUNTING PROCEDURES

Kansas takes exception (Br. 17-34) to the Master’s

recommendation that the Court should reform the

Accounting Procedures to correct the error identified

by Nebraska. Nebraska demonstrated that the Ac-

counting Procedures sometimes treat the consumption

of imported water within the Basin as if it were con-

sumption of the Basin’s virgin water supply “by in-

cluding imported water when running the model simu-

lations” that are used to calculate each State’s con-

sumption of groundwater. Report 36-37.

The testimony of a Colorado witness verified that

under the current Accounting Procedures, Nebraska

is incorrectly charged for the consumption of imported

water in some circumstances (Report 33), and Colora-

do agrees that the procedure should be changed.

Kansas does not dispute the existence of the feature

Nebraska has identified, but it does not agree to a

change in the procedure.

31

The Master’s suggested route to correct this error

through reformation of the Accounting Procedures is

reasonable. Reformation is an available remedy

where a “writing * * * fails to express the agree-

ment because of a mistake of both parties as to the

contents or effects of the writing.” Restatement (Sec-

ond) of Contracts § 155; see Philippine Sugar Estates

Dev. Co. v. Government of Philippine Islands, 247

U.S. 385, 389 (1918). The Master correctly concluded

that the parties expressly intended that consumption

of imported water within the Basin would not count

toward a state’s “Computed Beneficial Consumptive

Use” of the virgin water supply. Report 24, 43 (citing

FSS Art. [V.F, Report App. E35). The Accounting

Procedures nevertheless do so in the circumstances

Nebraska describes, which is inconsistent with the

parties’ agreement. /d. at 43.

The change to the Accounting Procedures also cor-

responds to the terms of the Compact itself, which

was intended only to divide the virgin water supply

“originating in” the Basin. Art. I1I, 57 Stat. 87. By

counting the consumption of water that is imported

from the Platte River Basin against Nebraska's bene-

ficial consumptive use of the virgin water supply, the

Accounting Procedures expanded the scope of the

Compact to include water from another basin in the

parties’ division of water. Counting the consumption

of imported water against Nebraska's beneficial con-

sumptive use also reduces the amount of the virgin

water supply that Nebraska may consume, which is

contrary to the allocation made in the Compact. In

those respects, the FSS is “especially amenable to

reformation” because the change brings the parties

rights and obligations in line with the Compact’s divi-

32

sion of water. Report 42; cf. Vermont v. New York,

417 U.S. 270 (1974) (suggesting that a settlement

agreement would not be binding if it conflicts with an

interstate compact).

Kansas contends (Exep. Br. 20-23) that the feature

about which Nebraska complains was not a mistake,

and that the parties all agreed that the model they

created was only intended to “approximate actual

conditions” and was “was sufficient for its intended

purposes.” Kansas further contends (id. at 24-29) that

the States were generally aware of the problem and

nevertheless agreed to the Accounting Procedures

after extensive negotiation. The Master rejected

those arguments and explained that, based on the

evidence presented during the proceedings, the par-

ties were not aware that the Accounting Procedures

contained this error (Report 26-27), Nebraska was not

accepting the error in exchange for some other

tradeoff (id. at 28), and Kansas did not negotiate with

a “bottom line” in mind that would have caused it to

reject Nebraska’s proposed solution (id. at 28-32).

Based on these findings, the Master reasonably con-

cluded that reforming the Accounting Procedures to

prevent Nebraska’s consumption of imported water

from being counted toward its allocated share of the

virgin water supply “would be effectuating, not chang-

ing, the FSS.” /d. at 51.

As the Master explained (Report 38), the Court

could not reform the terms of the Compact itself,

because the Compact is a law of the United States that

required congressiona! approval to become effective.

See Texas v. New Mexico, 482 U.S. at 128. But the

FSS is not an interstate compact, and it did not re-

quire congressional approval because it expressly did

33

not “change the States’ respective rights and obliga-

tions under the Compact.” FSS Art. 1.D; see Report

4l.

Reforming the FSS as the Master suggested in

Appendix F of the Report would not undermine the

willingness of States to enter into settlement agree-

ments when disputes arise. As the Master explained,

reformation is not available “simply to reflect better

judgments or accommodate new facts.” Report 54.

The remedy requires “a clear showing that a docu-

ment need be rewritten to correct an error of expres-

sion—in words or in math—that materially conflicts

with the actual agreement.” Report 54. The Master

thoroughly explained why that remedy was justified

here.

In the initial years after the FSS was approved,

Nebraska did not have in place procedures that were

adequate to ensure the State would stay within its

agreed-upon allocation of water. If the Master’s rec-

ommendation is accepted, Kansas will be compensated

for the water it was entitled to receive during that

period. It appears that Nebraska now has a plan in

place to stay within its allocation going forward. As

the States move on from this settling-in period follow-

ing approval of the FSS, the Accounting Procedures

should be reformed to accurately reflect the agree-

ment, expressed in both the FSS and the Compact,

that consumption of imported water will not count

toward a party’s allocation of the Basin’s virgin water

supply.

34

CONCLUSION

The exceptions of Nebraska and Colorado to the

Special Master’s recommendation to award Kansas

partial disgorgement of Nebraska’s gain, and the

exceptions of Kansas to (i) the Special Master’s rec-

ommendation against an award of specific injunctive

relief and (ii) the Special Master’s recommendation

that the Court should reform the RRCA Accounting

Procedures, should be overruled.

Respectfully submitted.

DONALD B. VERRILLI, JR.

Solicitor General

ROBERT C. DREHER

Acting Assistant Attorney

General

EDWIN S. KNEEDLER

Deputy Solicitor General

ANN O’CONNELL

Assistant to the Solicitor

General

KEITH E. SAXE

JAMES DUBOIS

Attorneys

APRIL 2014