# Amicus Curiae Brief — Kansas v. Nebraska and Colorado (No. 220126-ORG) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385015_0998%3A41 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 2015 ## Text 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). 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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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385015_0998%3A41. Public record. Not legal advice.