Opposition Brief — Kansas v. Colorado

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Supreme Court, U.S.

| nr ) FILED.

No. 105, Original | Jan 3 2001

In The CLERK

Supreme Court of the United States

STATE OF KANSAS,

Plaintiff,

STATE OF COLORADO,

Defendant,

UNITED STATES OF AMERICA,

Defendant-Intervenor.

On Exceptions To The Report

Of The Special Master

COLORADO’S REPLY BRIEF IN OPPOSITION

TO KANSAS’ EXCEPTION TO THE

THIRD REPORT OF THE SPECIAL MASTER

KEN SALAZAR

Attorney General of Colorado

Carot D. ANGEL

Senior Assistant Attorney General

Davip W. Rossins

Special Assistant Attorney General

Counsel of Record

Dennis M. MONTGOMERY

Special Assistant Attorney General

Hitt & Rossins, P.C.

1441 - 18th Street, #100

Denver, Colorado 80202

(303) 296-8100

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

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

1. Is there a “general rule” that prejudgment inter-

est should be awarded on damages for violation of an

interstate water compact, absent some exceptional cir-

cumstance?

2. Should prejudgment interest be awarded on dam-

ages for violation of the Arkansas River Compact before

Colorado knew, or should have known, that post-Com-

pact well pumping in Colorado was depleting usable

Stateline flows in violation of the Compact?

3. Are the circumstances identified by the Special

Master appropriate reasons for denying prejudgment

interest?

TABLE OF CONTENTS

QUESTIONS PRESENTED ...........-- eee eeeeeee

PROVISIONS OF THE ARKANSAS RIVER COM-

PACT ENVOLVED ..... cc ccccncescccccsenssenenss

INTRODUCTION AND SUMMARY OF ARGUMENT

Il.

Ill.

IV.

SSS HSSERARECHREECHR SEER SOAS CCCHSHS ECE SECS CS See SS

THERE IS NO GENERAL RULE THAT PRE-

JUDGMENT INTEREST SHOULD BE

AWARDED IN A CASE SUCH AS THIS.....

TEXAS V. NEW MEXICO IS NOT DISPOSI-

TIVE OF COLORADO'S LIABILITY IN THIS

of. Srerpereg we errr rw rs re re oer

EVEN IF AN AWARD OF PREJUDGMENT

INTEREST IS DISCRETIONARY, THE CIR-

CUMSTANCES OF THIS CASE DO NOT SUP-

PORT AN AWARD OF PREJUDGMENT

INTEREST BEFORE 1985 ............-.0e00es

THE CONSIDERATIONS IDENTIFIED BY THE

MASTER FULLY SUPPORT THE DENIAL OF

PREJUDGMENT INTEREST BEFORE COLO-

RADO KNEW, OR SHOULD HAVE KNOWN,

THAT POST-COMPACT WELL PUMPING

WAS DEPLETING USABLE STATELINE

fs) Jerre errr Serer ree 7

ARTICLE VII-A OF THE COMPACT DOES

NOT MAKE COLORADO LIABLE FOR VIO-

LATIONS OF THE COMPACT, WHETHER OR

NOT COLORADO KNEW, OR HAD REASON

TO KNOW, OF SUCH VIOLATIONS.........

CORICTIUTSIOIN unc cob is ves ceuvnasdeweseunaneesbeeks

lil

TABLE OF AUTHORITIES

Page

CAsEs

Alden v. Maine, 527 U.S. 706 (1999).............. 12, .33

Arizona v. California, 373 U.S. 546 (1963) ........... 33

Badgley v. City of New York, 606 F.2d 358 (2d Cir.

1979), cert. denied, 447 U.S. 906 (1980)............. 31

Blau v. Lehman, 368 U.S. 403 (1962) ................ 14

Board of Comm'rs of Jackson County v. United

states, 50S US. 343 (1999) .........0%. 7, 9, 13, 14, 24

Cement Div., National Gypsum Co. v. City of Mil-

waukee, 915 F.2d 1154 (7th Cir. 1990).............. 8

City of Milwaukee v. Cement Div., National Gyp-

ee 0 Ge COE ai waves svcsececss passim

Colorado v. Kansas, 320 U.S. 383 (1943)............. 12

Commercial Union Assur. Co. v. Milken, 17 F.3d

608 (2d Cir.), cert. denied, 513 U.S. 873 (1994) ..... 34

Funkhouser v. J. B. Preston Co., 290 U.S. 163

EG Se re re ee 10

General Motors Corp. v. Devex Corp., 461 U.S. 648

ese choo ie a ar 10, 11, 19

Hinderlider v. La Plata & Cherry Creek Ditch Co.,

es inka in 6 5 vibes be vdesveens 31, 36

Kansas v. Colorado, 514 U.S. 673 (1995)

Re Slee Gia A oa eipe A 660. 00-940 4, 20, 21, 24, 27, 36

Kentucky v. Indiana, 281 U.S. 163 (1930)............ 12

Miller v. Robertson, 266 U.S. 243 (1924)............. 13

Myron v. Chicoine, 678 F.2d 727 (7th Cir. 1982) ...... 8

TABLE OF AUTHORITIES - Continued

Page

Nebraska v. Wyoming, 325 U.S. 589 (1945) .......... 29

New Jersey v. New York, 347 U.S. 995 (1954) ....... 31

Port Authority Trans-Hudson Corp. v. Feeney, 495

Cha ee REP A ond concdixandesscbannshannvabeeken 36

Texas v. New Mexico, 462 U.S. 554 (1983)....15, 16, 17

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

United States v. Foster Wheeler Corp., 447 F.2d

oe ke e.g | errr errr err er er rt ree 34, 35

United States v. Texas, 507 U.S. 511 (1993)

itary hGLPOUREE Gea oe head eee 10, 19, 22, 23, 26

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

hERKE ORR EA Mee OL eee Rev rie aes 8, 9, 10, 12, 26

Wickham Contracting Co. v. Local Union No. 3,

IBEW, 955 F.2d 831 (2d Cir.), cert. denied, 506

Te i Par eer ee eee ere ere 13

Wilkerson v. Ingalls Shipbuilding, Inc., 125 F.3d

Rs Ry re ere ere renee Sere 11

Wyoming v. Colorado, 259 U.S. 419 (1922) .......... 29

Wyoming v. Colorado, 286 U.S. 494 (1931) .......... 17

Wyoming v. Colorado, 309 U.S. 572 (1940) .......... 17

STATUTES, TREATISES, AND OTHER AUTHORITIES

Arkansas River Compact, 63 Stat. 145 (1949) ....... 1,2

Arkansas River Compact, Art. I-A ................5. 36

Arkansas River Compact, Art. I-B................... 31

Arkansas River Compact, Art. IV-D........... 2, 16, 34

——— eee

TABLE OF AUTHORITIES - Continued

Page

Arkansas River Compact, Article VII-A....... 30, 31, 35

Arkansas River Compact, Art. VIII-A and -C..... 16, 30

Arkansas River Compact, Art. VIII-H ....16, 27, 30, 32, 35

Colorado River Compact, Article III(d).............. 32

Pecos River Compact, 63 Stat. 159 2.50.00 500 csceces 15

Pecos River Compact, Art. III(a) .................... 15

Restatement (Second) of Torts § 284 (1965)....8, 10, 11

REFERENCES TO REPORTS OF THE SPECIAL MASTER

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

rado, No. 105, Orig. (July 1994) ............... passim

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

rado, No. 105, Orig. (Aug. 2000) .............. passim

Appendix to Second Report of the Special Master .... 21

Appendix to Third Report of the Special Master ..... 7

COLORADO’S REPLY BRIEF IN OPPOSITION

TO KANSAS’ EXCEPTION TO THE

THIRD REPORT OF THE SPECIAL MASTER

PROVISIONS OF THE ARKANSAS

RIVER COMPACT INVOLVED

The Kansas exception to the Third Report of the

Special Master involves the following provisions of the

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

ARTICLE I

The major purposes of this Compact are to:

A. Settle existing disputes and remove

causes of future controversy between the States

of Colorado and Kansas, and between citizens of

one and citizens of the other State, concerning

the waters of the Arkansas River and their con-

trol, conservation and utilization for irrigation

and other beneficial purposes.

B. Equitably divide and apportion

between the States of Colorado and Kansas the

waters of the Arkansas River and their utiliza-

tion as well as the benefits arising from the

construction, operation and maintenance by the

United States of John Martin Reservoir Project

for water conservation purposes.

ARTICLE IV

* oa »

D. This Compact is not intended to

impede or prevent future beneficial develop-

ment of the Arkansas River basin in Colorado

and Kansas by Federal or State agencies, by

private enterprise, or by combinations thereof,

which may involve construction of dams, reser-

voir,! and other works for the purposes of water

utilization and control, as well as the improved

or prolonged functioning of existing works: Pro-

vided, that the waters of the Arkansas River, as

defined in Article III, shall not be materially

depleted in usable quantity or availability for

use to the water users in Colorado and Kansas

under this Compact by such future development

or construction.

ARTICLE VII

A. Each State shall be subject to the terms

of this Compact. Where the name of the State or

the term “State” is used in this Compact these

shall be construed to include any person or

entity of any nature whatsoever using, claiming

or in any manner asserting any right to the use

of the waters of the Arkansas River under the

authority of that State.

* + *

ARTICLE VIII

- A. To administer the provisions of this

Compact there is hereby created an interstate

1 Article IV-D of the Compact as printed in 63 Stat. 145

contains a typographical error. The Compact as signed by the

Commissioners said “reservoirs.”

agency to be known as the Arkansas River Com-

pact Administration herein designated as “the

Administration”.

* * *

C. The membership of the Administration

shall consist of three representatives from each

State who shall be appointed by the respective

Governors for a term not to exceed four years.

One Colorado representative shall be a resident

of and water right owner in Water Districts 14 or

17, one Colorado representative shall be a resi-

dent of and water right owner in Water District

67, and one Colorado representative shall be the

Director of the Colorado Water Conservation

Board. Two Kansas representatives shall be resi-

dents of and water right owners in the counties

of Finney, Kearny or Hamilton, and one Kansas

representative shall be the chief State official

charged with the administration of water rights

in Kansas. The President of the United States is

hereby requested to designate a representative

of the United States, and if a representative is so

designated he shall be an ex-officio member and

act as chairman of the Administration without

vote.

* * x

H. Violation of any of the provisions of

this Compact or other actions prejudicial thereto

which come to the attention of the Administra-

tion shall be promptly investigated by it. When

deemed advisable as the result of such investi-

gation, the Administration may report its find-

ings and recommendations to the State official

who is charged with the administration of water

rights for appropriate action, it being the intent

of this Compact that enforcement of its terms

shall be accomplished in general through the

State agencies and officials charged with the

administration of water rights.

INTRODUCTION AND SUMMARY OF ARGUMENT

The State of Kansas brought this action to enforce its

rights under the Arkansas River Compact, which appor-

tions the waters of the Arkansas River between Colorado

and Kansas. In an earlier decision, Kansas v. Colorado, 514

U.S. 673 (1995), the Court accepted the Special Master’s

finding that post-Compact well pumping in Colorado had

caused material depletions of usable Stateline flows of

the Arkansas River in violation of the Compact and

remanded the case to the Master for determination of

unresolved issues in a manner not inconsistent with its

opinion. Id. at 693-94.

In his Third Report, the Master recommends that a

remedy for past depletions to usable Stateline flows

should be in money damages rather than repayment in

water. Third Report at 11, 119. He recommends that

money damages awarded to Kansas should include all

losses that have occurred as a result of Compact viola-

tions, including losses suffered by individual water users

in Kansas, and that prejudgment interest should be

awarded at the rates proposed by Kansas on damages

from 1969 to the date of judgment. Id. at 12-13, 64, 107,

119-20.

Kansas has taken exception to the Master’s recom-

mendation that prejudgment interest be denied on losses

that occurred before 1969. Kansas contends that the Mas-

ter correctly recognized a “general rule” that prejudg-

ment interest should be awarded in a case such as this

one, absent some exceptional circumstance. Brief in Sup-

port of Kansas’ Exception to the Third Report of the

Special Master (“Kansas Brief”) at 10, 12-13. Kansas

argues that prejudgment interest is an element of just

compensation, not a penalty, and that only very limited

circumstances would justify a denial of prejudgment

interest, such as where a plaintiff has been guilty of

undue delay in bringing suit. Id. at 11, 13-18. Kansas

States that this Court has previously ruled that Kansas

was not guilty of undue delay in prosecuting this lawsuit

and argues that none of the reasons offered by the Master

for his recommendation justifies withholding prejudg-

ment interest. Id. at 10-11, 18-26. Finally, Kansas argues

that Colorado is strictly liable under the terms of the

Compact for a violation of the Compact by its water

users, regardless of whether it knew, or should have

known, that post-Compact well pumping was violating

the Compact. Id. at 26-27.

There is no “general rule” that prejudgment interest

should be awarded in a case for breach of an interstate

water compact. This Court did not hold that damages

could be awarded as a remedy for the breach of an

interstate water compact until Texas v. New Mexico, 482

U.S. 124 (1987), and that case did not address whether

prejudgment interest should be awarded. The common-

law rule is that prejudgment interest is not awarded on

damages for breach of contract unless the claim is liqui-

dated. None of the circumstances in this case justifies a

deviation from the common-law rule. However, even if

Ore OPT a "

an award of prejudgment interest is discretionary in this

case, an award of prejudgment interest would not be

justified before Colorado knew, or should have known,

that post-Compact well pumping in Colorado was deplet-

ing usable Stateline flows in violation of the Compact.

Further, the difficulty of determining depletions to usable

Stateline flows caused by post-Compact well pumping

was appropriately considered by the Master as a reason

for denying prejudgment interest.

Finally, neither Texas v. New Mexico nor the express

terms of the Arkansas River Compact suggest that Colo-

rado is strictly liable for a violation of the Compact,

regardless of whether Colorado knew, or had reason to

know, that post-Compact well pumping was violating the

Compact. Moreover, an award of damages to Kansas

based on losses suffered by individual water users is not

compensatory, and an award of prejudgment interest

should not result in overcompensating Kansas.

I. THERE IS NO GENERAL RULE THAT PREJUDG-

MENT INTEREST SHOULD BE AWARDED IN A

CASE SUCH AS THIS

Kansas contends that “[t]he Special Master correctly

recognized the general rule that prejudgment interest

should be awarded in a case such as this one, absent

some exceptional circumstance.” Kansas Brief at 10. In

fact, there is no “general rule” that prejudgment interest

should be awarded in a case such as this. This Court did

not hold that money damages could be awarded as a

remedy for breach of an interstate water compact until

Texas v. New Mexico, 482 U.S. 124 (1987). Despite the

implication of the Kansas argument, the Court did not

address whether prejudgment interest should be awarded

if a monetary remedy were recommended in that case. As

the Master stated, “there is no case in which prejudgment

interest has been awarded that is at all similar to the facts

in this dispute.” Third Report at 98. The Master pointed

out the uniqueness of this case in his Second Report:

In this case at hand, depletions of usable

Stateline flows in violation of the compact reach

back to 1950, and Kansas seeks relief, preferably

in money damages, for the total amount of the

shortfall since 1950. The Court has already ruled

that Kansas was not guilty of laches in bringing

this action, but nonetheless Kansas did not seek

to file its complaint until the end of 1985. The

parties then took almost five years in preparing

for trial which began in September of 1990.

Whether any of the circumstances and develop-

ments that have occurred since 1950 may be

considered in assessing the appropriateness of

prejudgment interest should be a matter of argu-

ment and proof in future proceedings of the

remedies phase of this case. Much like [Board of

Comm'rs of] Jackson County v. United States [308

U.S. 343 (1939)], we are without “roots in his-

tory” in approaching the issue of damages and

prejudgment interest in a case of this kind. 308

U.S. at 351, supra.

App. to Third Report at 44.

Moreover, the Court’s cases that are cited as the basis

for the presumption in favor of prejudgment interest are

much more limited than Kansas recognizes. City of Mil-

waukee v. Cement Div., National Gypsum Co., 515 U.S. 189

(1995), the principal case relied on by Kansas, was an

admiralty case, where decrees have historically included

prejudgment interest. Id. at 194-96. In addition, it was a

case for negligence, in which the City of Milwaukee had

negligently breached its duty as a wharfinger. Id. at 191.

In other words, the City knew, or should have known,

that its actions involved an unreasonable risk of causing

injury. Cement Div., National Gypsum Co. v. City of Mil-

waukee, 915 F.2d 1154, 1157-58 (7th Cir. 1990) (summariz-

ing the district court’s findings that the City was

negligent and at fault); Restatement (Second) of Torts

§ 284 (1965); see also Myron v. Chicoine, 678 F.2d 727, 733

(7th Cir. 1982) (an award of prejudgment interest is par-

ticularly appropriate in cases involving investment

fraud).

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

cited by Kansas as recognizing the compensatory nature

of prejudgment interest in contract cases, was a suit by

the United States against the State of West Virginia for

breach of a contract to pay money. In that case, West

Virginia had asked the U.S. Army Corps of Engineers

(Corps) to prepare sites for mobile homes to assist victims

displaced by disasters. Id. at 307. The mobile homes were

provided by the Federal Government pursuant to the

Disaster Relief Act of 1970, but the Act specifically

required the State or local government to provide the

sites, without charge to the United States. Id. West Vir-

ginia found itself unable to provide the sites and asked

the Corps to prepare them. Id. The Corps agreed and

billed West Virginia for its services, which the State then

failed to pay. Id.

The United States brought suit seeking to recover

$4.2 million for site preparation services plus prejudg-

ment interest. Id. West Virginia denied liability for the

debt, claiming that the State official who had entered into

the agreement had acted without authority. Id. The Dis-

trict Court rejected the claim and found the State contrac-

tually obligated, but concluded that the State should not

be liable for prejudgment interest based on an analysis of

the policies underlying the Disaster Relief Act. Id. at 308.

The Fourth Circuit Court of Appeals reversed the denial

of prejudgment interest, holding that prejudgment inter-

est was allowable as a matter of right in a breach-of-

contract action where the amount due was liquidated,

ascertained, or agreed to. Id.

This Court then held that the rule governing the

interest to be recovered as damages for delayed payment

of a contractual obligation to the United States was a

matter of federal law and should be governed by a uni-

form national rule. Id. at 308-09. The Court recognized

that under Board of Comm’rs of Jackson County v. United

States, 308 U.S. 343 (1939), interest “could not simply be

required with respect to all claims by the United States

against a State or its political subdivision.” 479 U.S. at

309. The Court held, however, that under the circum-

stances there was no policy to compel deviation from the

longstanding rule that parties owing debts to the Federal

Government must pay prejudgment interest where the

underlying claim is a contractual obligation to pay

money. Id. at 310. The Court noted that prejudgment

interest is an element of complete compensation and that

this federal interest in complete compensation was likely

to be present “in any ordinary commercial contractual

arrangement between a State and the Federal Govern-

ment.” Id. at 310-11 (emphasis added). See also United

States v. Texas, 507 U.S. 511, 538 (1993) (Debt Collection

Act did not abrogate the United States’ federal common

law right to collect prejudgment interest on debts owed to

the Federal Government by the states).?

In General Motors Corp. v. Devex Corp., 461 U.S. 648

(1983), another case cited in the Kansas brief, this Court

affirmed an award of prejudgment interest in a patent

infringement suit under 35 U.S.C. § 284. The statute

directed that “[u]pon finding for the claimant the court

shall award the claimant damages adequate to compen-

sate for the infringement, . . . together with interest and

costs as fixed by the court.” 461 U.S. at 652. Decisions by

the Court prior to the enactment of § 284 had generally

limited awards of prejudgment interest from the date on

which damages were liquidated, and prejudgment inter-

est could only be awarded from the date of infringement

2 Funkhouser v. J. B. Preston Co., 290 U.S. 163 (1933), the

other contract case cited by Kansas as recognizing the

compensatory nature of prejudgment interest, involved a New

York statute providing for prejudgment interest in any action

for breach of contract, whether liquidated or unliquidated, in

which a sum of money was awarded by verdict, report, or

decision. Id. at 165 & n.1. The issue in the case was whether the

statute was an unconstitutional impairment of contracts that

had been entered into prior to the adoption of the statute. The

Court held that the allowance of interest in the case of

unliquidated claims was an appropriate subject for legislative

action. Id. at 168. The Court noted that some courts and

commentators had recognized that a distinction simply between

liquidated and unliquidated damages was not a sound one,

although many jurisdictions continued to follow it. Id. at 168-69.

in exceptional circumstances, such as bad faith on the

part of the infringer. Id. The Court held that the underly-

ing purpose of § 284 strongly suggested that prejudgment

interest should ordinarily be awarded, pointing out that a

1946 amendment had taken away the remedy of recover-

ing the infringer’s profits. Id. at 654.

City of Milwaukee and General Motors should be con-

trasted with Wilkerson v. Ingalls Shipbuilding, Inc., 125 F.3d

904 (Sth Cir. 1997), in which an employee claimed pre-

judgment interest on his disability claim under the Long-

shore and Harbor Workers’ Compensation Act from the

date of the injury - a permanent hearing loss resulting

from noise he was exposed to at a shipyard. There was a

twenty-year lag between the date of the injury and the

claim. Id. at 906. The Fifth Circuit Court of Appeals

agreed that there was a general rule that prejudgment

interest should be awarded in maritime cases, but held

that under the statute an employee’s compensation ciaim

becomes due, if not controverted, fourteen days after he

files notice of the claim. Id. at 907-08. The Court of

Appeals held that to hold that an employee is entitled to

interest dating from the time he is injured, rather than

fourteen days after he filed notice of the claim, would be

to alter the amount of compensation he is due under the

statute and thus undermine the will of Congress. Id. at

908.

Thus, an examination of the cases in which prejudg-

ment interest is ordinarily awarded reveals that they

depend on two prerequisites. First, prejudgment interest

has historically been awarded in that area of the law (e.g.,

admiralty cases), or there is a federal policy calling for

complete compensation. Second, they involve an ordinary

commercial contractual arrangement, such as an agree-

ment to pay money, or the party ordered to pay prejudg-

ment interest knew, or should have known, that its

actions involved an unreasonable risk of injury to the

party claiming prejudgment interest or that its actions

violated a federal statute.

In contrast to the cases cited by Kansas, prejudgment

interest has not traditionally been awarded on damages

for breach of contract unless the claim is liquidated. Even

if West Virginia v. United States can be read to establish a

rule that prejudgment interest should be awarded on

damages for breach of any contract to pay money, absent

some exceptional circumstance, and that a policy calling

for complete compensation is likely to be present in any

ordinary commercial contractual arrangement, the under-

lying claim in this case does not involve the breach of an

agreement to pay money and the Arkansas River Com-

pact is not an ordinary commercial contractual arrange-

ment. Cf. Kentucky v. Indiana, 281 U.S. 163 (1930)

(involving a contract for building a bridge across the

Ohio River). Rather, the Compact apportions the waters

of an interstate river, a delicate task that involves adinin-

istrative control over the actions of private individuals.

See Colorado v. Kansas, 320 U.S. 383, 392 (1943). There is no

federal policy calling for complete compensation for

losses suffered by individual water users resulting from

the breach of an interstate compact. Indeed, the 11th

Amendment reflects a policy that states would not be

exposed to damages claims by private individuals. Alden

v. Maine, 527 U.S. 706, __, 119 S.Ct. 2240, __, 144 L.Ed.

2d 636, 652, 657 (1999). Finally, at least for many years,

this is not a case where Colorado knew, or should have

known, that post-Compact well pumping by private indi-

viduals in Colorado was causing violations of the Com-

pact. Thus, the circumstances in this case do not support

Kansas’ contention that there is a “general rule” favoring

an award of prejudgment interest in a case such as this

one.

As this Court has recognized, there is a “venerable

common-law rule that prejudgment interest is not

awarded on unliquidated claims.” City of Milwaukee, 515

U.S. at 197. The basis of the common-law rule is the

perceived unfairness of making the breaching party pay

interest on a claim when the breaching party could not

know how much to tender to stop the accumulation of

interest. Wickham Contracting Co. v. Local Union No. 3,

IBEW, 955 F.2d 831, 835 (2d Cir.), cert. denied, 506 U.S. 946

(1992). The rule has been criticized on the grounds that it

does not provide fair compensation to the non-breaching

party. See Miller v. Robertson, 266 U.S. 243, 258 (1924).

While some lower courts have concluded that the com-

mon-law rule has been replaced by a rule that an award

of prejudgment interest is discretionary, Wickham Con-

tracting, 955 F.2d at 835-36, the distinction between dam-

ages that are readily ascertainable and those that are not

remains a factor that courts have continued to consider in

’ determining whether a party breaching a contract should

be treated as an involuntary investor for the non-breach-

ing party. Id. at 836. Further, even in suits by the United

States against a state or a political subdivision of a state,

other than those where the underlying claim is a contrac-

tual obligation to pay money, prejudgment interest “is not

recoverable according to a rigid theory of compensation

for money withheld, but is given in response to consider-

ations of fairness.” Board of Comm'rs of Jackson County v.

United States, 308 U.S. at 352; see also Wickham Contracting,

955 F.2d at 836 (listing factors to be considered in an

award of prejudgment interest, including fairness and the

relative equities). Thus, even if an award of prejudgment

interest is within the sound discretion of the Court in this

case, the fact that Colorado did not know, or have reason

to know, that post-Compact well pumping was depleting

usable Stateline flows in violation of the Compact would

be a relevant consideration of fairness in determining

whether to award prejudgment interest. See Board of

Comm'rs of Jackson County v. United States, 308 U.S. at

352-53; see also Blau v. Lehman, 368 U.S. 403, 414 (1962).

In summary, the facts in this case do not justify a

deviation from the traditional common-law rule that pre-

judgment interest is not awarded on unliquidated claims.

But, even if an award of prejudgment interest is discre-

tionary, considerations of fairness would be relevant to an

award of prejudgment interest.

II. TEXAS V. NEW MEXICO IS NOT DISPOSITIVE OF

COLORADO’S LIABILITY IN THIS CASE

Kansas argues that Colorado is liable for the violation

of the Compact by its water users, regardless of whether

Colorado knew, or had reason to know, that the actions of

its water users were causing depletions to usable State-

line flows. Kansas Brief at 11. In support of its position,

Kansas relies heavily on the fact that New Mexico was

held liable for the actions of its water users in Texas v.

New Mexico and the Court's statement that “good-faith

differences about the scope of contractual undertakings

do not relieve either party from performance.” Kansas

Brief at 14-15, 19 n.4, citing Texas v. New Mexico, 482 U.S.

at 129.5 However, there are important differences

between Texas v. New Mexico and this case, differences

that Kansas fails to recognize.

First, in the Pecos River Compact, 63 Stat. 159, New

Mexico had agreed that any man-made activities in New

Mexico that would deplete the flow of the Pecos River at

the New Mexico-Texas state line below a specified

amount were prohibited. The Pecos River Compact

expressly provided that “New Mexico shall not deplete by

man’s activities the flow of the Pecos River at the New

Mexico-Texas state line below an amount which will give

to Texas a quantity of water equivalent to that available

to Texas under the 1947 condition.” Texas v. New Mexico,

462 U.S. 554, 559 (1983), quoting Pecos River Compact,

Art. III(a) (emphasis added).

Second, in Texas v. New Mexico, it had been apparent

almost from the beginning that the flows of the Pecos

River at the state line were below the amount that would

have been predicted on the basis of the Inflow-Outflow

Manual that had been developed to determine the quan-

tity of water that would be available to Texas under the

f 1947 condition. 462 U.S. at 558-59, 560. In 1957, the Pecos

River Commission authorized a study and in 1962

' adopted findings of fact regarding the cumulative short-

falls of state-line flows for the years 1950-1961. Id. at

560-61. The scope of New Mexico’s obligation may have

remained uncertain after 1961, but the existence of a

dispute about whether New Mexico was allowing the

3 The Court’s statement was made in response to New

Mexico’s argument that its good faith relieved it from any

retrospective remedy whatsoever. 482 U.S. at 128-29.

flow of the Pecos River at the New Mexico-Texas state

line to be depleted by man’s activities below the “1947

condition” was clearly known to New Mexico from a very

early date. Id.4

In contrast, the Arkansas River Compact did not

prohibit future beneficial development of the Arkansas

River Basin in either State by federal agencies, state agen-

cies, or private individuals. Arkansas River Compact,

Art. IV-D. The limitation imposed by the Compact was

that “the waters of the Arkansas River . . . shall not be

materially depleted in usable quantity or availability for

use to the water users in Colorado and Kansas under this

Compact by such future development or construction.”

Id.

The Arkansas River Compact created an interstate

agency known as the Arkansas River Compact Adminis-

tration (“Administration”), consisting of three representa-

tives from each State. Arkansas River Compact, Art. VIII-

A and -C. The Administration is directed to investigate

promptly violation of any of the provisions of the Compact

and is authorized to report its findings and recommenda-

tions to the State official who is charged with the admin-

istration of water rights for appropriate action, “it being

the intent of this Compact that enforcement of its terms

shall be accomplished in general through the State agen-

cies and officials charged with the administration of

water rights.” Id., Art. VIII-H. Thus, Colorado believes

that it should be liable under Article IV-D of the Compact

* Texas finally brought suit in 1974, “after years of

relatively fruitless negotiations.” Texas v. New Mexico, 482 U.S.

124, 126 (1987).

Toa Ce

—

only to the extent it knew, or should have known, that

post-Compact well pumping was depleting usable State-

line flows in violation of the Compact, but failed to act,

just as New Mexico knew that state-line flows of the

Pecos River were below the amount that would have been

predicted using the Inflow-Outflow Manual, but took no

action. Cf. Wyoming v. Colorado, 286 U.S. 494, 497, 509-10

(1931) (finding that Wyoming’s bill was not defective

because it alleged that diversions were made in excess of

decree “with the knowledge, permission and cooperation

of Colorado.”). At the very minimum, the fact that Colo-

rado did not know, or have reason to know, that post-

Compact well pumping in Colorado was depleting usable

Stateline flows should be a factor in extenuation in

awarding any damages, and especially prejudgment

interest, during that period. See Wyoming v. Colorado, 309

U.S. 572, 582 (1940) (period of uncertainty considered as

an extenuating factor in determining whether Colorado

should be held in contempt for violation of a decree of

the Court equitably apportioning the Laramie River).

In this case, Kansas, unlike Texas, did not request an

investigation of post-Compact well pumping by the

Administration until 1985. Third Report at 103. In con-

trast to Texas v. New Mexico, there was no awareness by

either State of depletions to usable Stateline flows in the

years immediately following the adoption of the Com-

pact. In Texas v. New Mexico, both States were aware there

were shortfalls, but could not agree on how to determine

the amount of water that Texas was entitled to receive

under the 1947 condition. In contrast, here the Master

stated: “I am confident that in 1950, the first year after the

compact was signed, and in the early years thereafter, no

—_

one had any thought that the compact was being violated.”

Third Report at 100 (emphasis added). Moreover, sophis-

ticated computer modeling was necessary to determine

depletions to Stateline flows. Id. at 106.

Colorado agrees that as of 1985, there was a good-

faith dispute about the impact of post-Compact well

pumping on usable Stateline flows and that Colorado’s

good-faith is not a defense to a violation of the Compact

after 1985. Before that date, however, Colorado was not

on notice that post-Compact well pumping was depleting

usable Stateline flows in violation of the Compact, and

the Administration had made no investigation and no

findings of fact or recommendations to State officials in

Colorado charged with the administration of water rights

regarding post-Compact well pumping. First Report at

155-56. Nor had Kansas made any complaint about post-

Compact well pumping until 1985. Third Report at 103.

Ill. EVEN IF AN AWARD OF PREJUDGMENT

INTEREST IS DISCRETIONARY, THE CIRCUM-

STANCES OF THIS CASE DO NOT SUPPORT

AN AWARD OF PREJUDGMENT INTEREST

BEFORE 1985

As Kansas admits, the prejudgment interest inquiry

is governed by traditional judge-made principles, inas-

much as Congress has not enacted a statute on the sub-

ject. Kansas Brief at 12, citing City of Milwaukee v. Cement

Div., National Gypsum Co., 515 U.S. 189, 194 (1995). Kansas

argues that the present case is in essence a contract case

because the Compact is a contract, Kansas Brief at 13, and

that prejudgment interest should be awarded to ensure

a 7 0 pe till. ms ity a Ty ill ~ _

that Kansas is fully compensated. Id. Kansas acknowl-

edges that even in cases where prejudgment interest is

ordinarily awarded, an award of prejudgment interest is

not automatic, but rests in the discretion of the tribunal

passing on the subject, id., citing City of Milwaukee, 515

U.S. at 196, but says that as with other discretionary

determinations, the Court’s decision must be supported

by a circumstance that has relevance to the issue at hand.

Id. Specifically, Kansas argues that the defendant’s good-

faith belief that it is not responsible for the plaintiff's loss

is not such a circumstance. Id. at 14.

In Section I of this brief, Colorado has shown that

there is no “general rule” favoring an award of prejudg-

ment interest in a case such as this. However, even if this

is a case in which an award of prejudgment interest is

within the sound discretion of the Court, the circum-

stances in this case would not support an award of pre-

judgment interest before 1985. First, the primary reason

for awarding prejudgment interest on damages is to com-

pensate the plaintiff for the loss of use of money due

under a contract or as damages from the time the claim

accrues until judgment is entered. City of Milwaukee, 515

U.S. at 195-96. Awarding prejudgment interest also dis-

courages defendants from delaying payment of a debt or

damages. General Motors, 461 U.S. at 655 n.10; see United

States v. Texas, 507 U.S. at 537. However, in the typical

case where prejudgment interest is awarded, the claim

did not accrue until the defendant knew, or should have

known, that its performance was due under a contract,

e.g., United States v. Texas, 507 U.S. at 532 (Federal Gov-

ernment notified Texas of its debt and informed it that

prejudgment interest would begin to accrue on the bal-

ance unless payment was made within 30 days), or the

defendant knew or should have known that its actions

involved an unreasonable risk of causing injury and those

actions caused an injury or loss to the plaintiff. E.g., City

of Milwaukee, 515 U.S. at 191. In those circumstances, a

defendant's good-faith belief that it is not responsible for

the plaintiff’s loss does not relieve it of the obligation to

pay prejudgment interest. Id. at 196-97.

Here, Kansas did not request an investigation of a

Compact violation until 1985, and Colorado did not

know, or have reason to know, that post-Compact well

pumping in Colorado was causing depletions to usable

Stateline flows for many years. Moreover, contrary to the

Master’s finding that Colorado knew, or should have

known, by 1968 that post-Compact wells were causing

material depletions of usable Stateline flows, Third

Report at 103, this Court found that the same evidence

was too vague and conflicting to demonstrate that Kansas

inexcusably delayed in bringing its claim. Kansas v. Colo-

rado, 514 U.S. at 688-89. If the evidence was too vague and

conflicting to alert Kansas to the need to request an

investigation of a Compact violation by the Administra-

tion, Colorado should not be charged with knowledge of

a Compact violation and failure to act on the basis of the

same evidence.®

° The Master’s view seems to be that by 1968 both States

knew, or should have known, that post-Compact well pumping

in Colorado was depleting usable Stateline flows. In his First

Report, the Master said that there was no specific evidence to

explain why Kansas failed to request an investigation before

1985, but said that Kansas may have been relying on Colorado’s

Thus, even if this is a case in which an award of

prejudgment interest is discretionary, prejudgment inter-

est should not be awarded on damages until 1985, the

date Kansas requested an investigation by the Adminis-

tration. Awarding prejudgment interest on damages prior

to the date that Colorado knew, or should have known, of

a Compact violation is not consistent with other cases in

which prejudgment interest has been awarded and would

not encourage state agencies and officials charged with

the administration of water rights to act to enforce the

terms of the Compact.

efforts to regulate wells. First Report at 170. He also pointed out

the difficulty of determining depletions to usable Stateline

flows on the basis of the available evidence. Id. at 162-63. The

Court did not fully adopt the Master’s findings in its 1995

opinion. Rather, the Court held that the evidence available to

Kansas was vague and conflicting. Kansas v. Colorado, 514 U.S. at

688-89. Even if the Court were to accept the Master’s finding

that the 1968 Wheeler Report was sufficient to trigger

Colorado’s obligation to enforce the Compact, the Court should

take into consideration the fact that sophisticated computer

models necessary to determine depletions to Stateline flows

were not available in 1968 and that there were other

developments in the 1970s and early 1980s that made it difficult

to determine depletions due to post-Compact well pumping. See

Colorado’s Brief in Support of Its Exceptions to the Third Report

of the Special Master 30-37. As the Master previously stated:

“Experts for both States testified that the only way to isolate

depletions caused by postcompact pumping, as opposed to

depletions caused by other changes along the stream system,

was through the use of hydrologic modeling.” App. to Second

Report at 16.

IV. THE CONSIDERATIONS IDENTIFIED BY THE

MASTER FULLY SUPPORT THE DENIAL OF PRE-

JUDGMENT INTEREST BEFORE COLORADO

KNEW, OR SHOULD HAVE KNOWN, THAT

POST-COMPACT WELL PUMPING WAS DEPLET-

ING USABLE STATELINE FLOWS

Kansas argues that the Master’s denial of prejudg-

ment interest for the period 1950-1968 must find justifica-

tion in some exceptional circumstance rendering an

award of interest unfair. Kansas Brief at 18. This argu-

ment is predicated upon Kansas’ assertion that there is a

“general rule” that prejudgment interest should be

awarded in a case such as this, absent some exceptional

circumstance, see Section I supra, and fails to recognize

that even in cases where prejudgment interest is ordi-

narily awarded, an award of prejudgment interest “is by

no means automatic.” E.g., United States v. Texas, 507 U.S.

at 536. Even if the Court were to accept Kansas’ “general

rule,” the considerations identified by the Master fully

support the denial of prejudgment interest before Colo-

rado knew, or should have known, that post-Compact

well pumping was depleting usable Stateline flows.

Kansas states that the Master identified three circum-

stances that, in his view, made this case exceptional, but

argues that none of these circumstances supports the

denial of prejudgment interest for the years 1950-1968.

Kansas Brief at 18-19. According to Kansas, the three

circumstances identified by the Master are: (1) the “great

length of time,” at least 50 years, since pre-Compact well

pumping began to deplete usable Stateline flows in viola-

tion of the Compact; (2) the fact that Colorado, like Kan-

sas, was unaware in the early years that depletions were

occurring in violation of the Compact; and (3) the fact

that Colorado farmers experienced most of the benefits,

while Kansas farmers experienced most of the losses,

from the violations of the Compact. Id.

Kansas’ summary does not fully describe the circum-

stances identified by the Master for recommending that

prejudgment interest be denied for the years 1950-1968.

The Master not only found that for many years neither

State was aware that post-Compact well pumping in Col-

orado was violating the Compact, Third Report at 100,

106, but also pointed out the difficulty of determining the

impact of post-Compact well pumping on usable Stateline

flows:

The general lack of knowledge in the early

years about pumping in Colorado and its

impacts along the Arkansas River served to pro-

tect Kansas during the liability phase of the case

against a claim of laches. The same degree of

fairness, I believe, should now relieve Colorado

of the obligation to pay full interest rates on

damages from depletions during [the]1950-68

period, which now only with hindsight and the

benefit of sophisticated computer modeling can be

found to have occurred.

Id. at 106 (emphasis added).®

reason to deny prejudgment interest and that the Master’s

“startled reaction” to the effect of compounding damages over

50 years is not a proper basis on which to exercise discretion.

Kansas Brief at 19-21. The Master did not rely on the “startling

results” or the “dramatic impact” of awarding prejudgment

interest alone as a basis for recommending the denial of

——

Colorado disagrees with the Master’s finding that by

1968 Colorado knew, or should have known, that post-

Compact wells were depleting usable Stateline flows, but

fully agrees with the Master that the lack of knowledge of

a Compact violation by either State and the difficulty of

determining that post-Compact well pumping in Colo-

rado was depleting usable Stateline flows are appropriate

factors to consider in determining whether prejudgment

Ee EO ee we

interest should be awarded in this case. See Board of

Comm'rs of Jackson County v. United States, 308 U.S. at 352

(fact that County did not know that taxes were improp-

erly levied on an Indian allotment considered in denying

prejudgment interest).

Furthermore, the difficulty of determining that post-

Compact well pumping was depleting usable Stateline

flows was not limited to the period 1950-1968. See Colo-

rado’s Brief in Support of Its Exceptions to the Third

Report of the Special Master 34-35. Because of that diffi-

culty, and the fact that the evidence available to Kansas

that post-Compact well pumping was depleting usable

Stateline flows was vague and conflicting, the Court held

that Kansas could not be charged with lack of diligence in

making its well pumping claim before 1985. Kansas v.

Colorado, 514 U.S. at 688-89. Even in 1990, Kansas had

enormous difficulty proving that post-Compact well

pumping had depleted usable Stateline flows in violation

of the Compact. As the Master stated in his First Report:

prejudgment interest. Rather, he pointed them out because they

dramatize the effect of awarding prejudgment interest in this

case. See Third Report at 100.

The major changes in Kansas’ position and

evidence cannot be ignored. For some five years

the Kansas experts worked to accumulate the

necessary data and to develop the H-I model in

order to support the state’s claims. Yet after

Colorado’s cross-examination during trial

uncovered numerous errors and shortcomings

in the Kansas evidence, and after the trial recess

caused by Durbin’s hospitalization, Kansas’

replacement experts testified to substantially

different conclusions than those resulting from

the original H-I model. Brent E. Spronk, one of

Kansas’ replacement experts, testified openly

that the results of the original H-I model were

not reliable. As part of its replacement case,

Kansas made numerous changes to the original

H-I model, but did not alter its basic logic and

structure. In addition, Kansas submitted 63

revised exhibits and 10 new exhibits. As a result

of these changes, Kansas cut its claimed depletions

approximately in half. . .

First Report at 236-37 (emphasis added) (footnotes and

citations omitted).7

? Timothy J. Durbin was Kansas’ chief technical witness.

First Report at 228. He developed the Kansas Hydrologic-

Institutional (H-I) model to quantify the impacts of individual

causes of depletions, including post-Compact well pumping, on

Stateline flows. Id. at 229-30. After cross-examination, but

before he could begin his redirect testimony, he “suffered a

breakdown and was admitted to a psychiatric hospital.” Id. at

28. Kansas then moved for a continuance to replace him with

other experts. /d. at 29. Over Colorado’s objection, the Master

grantec a seven-month continuance to allow Kansas to replace

Durbin with other experts and to correct and make substantial

changes to the H-I Model. Id. at 30, 241. With the continuance,

and Colorado’s need to undertake discovery to respond to the

26 i

While, as this Court noted in Texas v. New Mexico,

“[t]here is often a retroactive impact when courts resolve

contract disputes about the promisor’s undertaking,” in

the typical case the defendant knew, or should have

known, the nature of its undertaking, despite the dispute

about the scope of that undertaking. E.g., West Virginia v.

United States, 479 U.S. at 307 (West Virginia acknowl-

edged the bills from the Corps but denied liability for the |

debt on the grounds that the State official entering into

the agreement had acted without authority); cf. United

States v. Texas, 507 U.S. at 531-32 (Texas, through its

Department of Human Resources, contractually bound

itself to comply with all federal regulations governing the

Food Stamp Program, but challenged administrative

refusal to grant a waiver of liability and contested lia-

bility for prejudgment interest.). The fact that there is a

good-faith difference about the scope of a contractual

obligation does not relieve either party from perfor-

mance. Texas v. New Mexico, 482 U.S. at 129. In this case,

however, there was no good-faith difference about the

scope of Colorado’s obligation under the Compact or its

liability for any losses until 1985. Prior to that time,

Colorado believed it was in compliance with the Com-

pact, First Report at 169 (“I do not believe that Colorado

officials thought they were sanctioning a compact viola-

tion in the well regulations that were established, ... ”),

and Kansas had made no complaint about post-Compact

well pumping in Colorado. Third Report at 103 (“It is

revisions and changes by the Kansas replacement experts, it was

more than a year before Kansas resumed what it called its

“replacement case.” Id. at 29.

essentially correct that Kansas did not register a formal

complaint until 1985, . . . ”). Moreover, the Administra-

tion had felt no need to undertake an investigation of a

Compact violation or to report any findings or recom-

mendations to Colorado officials charged with the admin-

istration of water rights for appropriate action. See

Arkansas River Compact, Art. VIII-H.

The 1968 Wheeler Report, which the Master relies

upon as the basis for his finding that by 1968 Colorado

knew, or should have known, the impact of post-Compact

wells on usable Stateline flows, Third Report at 104, is

one of the reports that were available to Kansas and

which this Court found were “vague and conflicting”

about the impact of post-Compact well pumping on

usable Stateline flows. Kansas v. Colorado, 514 U.S. at

688-89. Of particular significance, the 1968 Wheeler

Report did not consider the effect of increased trans-

mountain imports, which to some extent provided an

offset to pumping. Id. at 689, quoting First Report at

162-63. If the Court accepts the Master’s finding that by

1968 Colorado knew, or should have known, that post-

Compact wells were causing material depletions of

usable Stateline flows, Third Report at 103, then, in fair-

ness, the Court should reconsider its earlier decision that

Kansas did not have sufficient evidence available to com-

plain about post-Compact well pumping in Colorado

prior to 1985.8

8 The Master states that the problems of data collection are

also enormous in this case. Third Report at 102. Colorado notes

that data concerning the number of wells, where they were

located, and how much water they pumped were developed by

The Master also recommends that prejudgment inter-

est be awarded on damages, at least from the date Colo-

rado knew, or should have known, of the impact of post-

Compact wells on usable Stateline flows because, though

a compact deals in water rather than money, “many of the

same policies calling for prejudgment interest in general

contract situations also apply to interstate water dis-

putes.” Third Report at 102. He states:

The upstream state has a natural geographic

advantage. It has first access to the water. It can

take what it wants, leaving the downstream

state to complain if the upstream use exceeds its

compact share. An enforcement action by the

downstream state is not only difficult and

expensive, it almost always requires years to

complete. Generally, a preliminary. injunction is

not available, and the upstream state continues

to have use of water during the long trial... .

Id.

While some of the policies favoring an award of

prejudgment interest in general contract Situations may

apply to this case once Colorado knew, or should have

the U.S. Geological Survey in the 1960s in cooperative studies

with Colorado. See Colorado’s Brief in Support of Its Exceptions

to the Special Master’s Third Report 32-33; App. to Colorado’s

Brief, Item 1 (Jt. Exh. 66). The difficulty in determining the

impact of post-Compact well pumping on usable Stateline flows

was not the lack of data about the number of wells, where they

were located, or how much water they had pumped, but the

difficulty in determining the impact of pumping on usable

Stateline flows and the lack of sophisticated computer models

necessary to quantify the effects of well pumping on usable

Stateline flows. Id. at 30-37.

PEND alt ot RE OTD RENE 55 >

known, that post-Compact well pumping was depleting

usable Stateline flows, some of the Master’s comments

are wide of the mark.

The fact that Colorado is the upstream state is not of

great significance to this Compact.? Article IV-D of the

Compact did not apply only to Colorado; it applied to

future beneficial development in the Arkansas River

Basin in both states. Post-Compact well pumping in Kan-

sas can also deplete the waters of the Arkansas River

available for use by water users in Colorado if it has the

effect of causing Kansas to demand additional releases of

water stored in John Martin Reservoir. First Report at 223.

Not every enforcement action is difficult or expen-

sive; this action was particularly difficult and time con-

suming because of the nature of the post-Compact

development involved. Moreover, the fact that enforce-

ment actions may be expensive and time-consuming

underscores the fact that this Compact created an Admin-

istration with authority to investigate violations of the

Compact, to make findings and recommendations to State

° If Colorado has a natural geographic advantage with

respect to the waters of interstate rivers, it also has a greater

burden to administer water use to comply with interstate water

compacts than most downstream states. The headwaters of four

major rivers originate in Colorado - the Colorado, the Platte

(both North and South), the Rio Grande, and the Arkansas.

Colorado is a party to nine interstate water compacts and two

equitable apportionment decrees entered by this Court. See

Colo. Rev. Stat. §§ 37-61-101 to 37-69-101 (setting forth the text

of the compacts); Wyoming v. Colorado, 259 U.S. 419 (1922)

(Laramie River); Nebraska v. Wyoming, 325 U.S. 589 (1945) (North

Platte River).

officials charged with administration of water rights for

appropriate action, and that it was the intent of this

Compact that enforcement of its terms be accomplished

in general through the State agencies and officials

charged with the administration of water rights.

Arkansas River Compact, Art. VIII-A, -C, and -H. These

provisions in the Compact demonstrate that the policies

favoring an award of prejudgment interest apply in this

case only when the defendant state knew, or should have

known, that a post-Compact development was depleting

the waters of the Arkansas River in violation of the

Compact. Implicitly, the Master supports an award of

prejudgment interest as a method to encourage an

upstream state not to withhold water in violation of a

compact. Such encouragement, however, can only operate

when a state knows, or has reason to know, of a violation

of a compact.

Vv. ARTICLE VII-A OF THE COMPACT DOES NOT

MAKE COLORADO LIABLE FOR VIOLATIONS

OF THE COMPACT, WHETHER OR NOT COLO-

RADO KNEW, OR HAD REASON TO KNOW, OF

SUCH VIOLATIONS

Kansas argues that Colorado is liable for a violation

of the Compact caused by the actions of water users in

Colorado, and must fully compensate Kansas for such

depletions, whether or not Colorado knew, or had reason

to know, of such violations on the grounds that “the

Compact’s express language does not admit of a distinc-

tion between a State and its water users.” Kansas Brief at

26, citing Arkansas River Compact, Article VII-A. Article

VII-A provides as follows:

tnd ee Alicae ols a yee Tae

A. Each State shal! be subject to the terms

of this Compact. Where the name of the State or

the term “State” is used in this Compact these

shall be construed to include any person or

entity of any nature whatsoever using, claiming

or in any manner asserting any right to the use

of the waters of the Arkansas River under the

authority of that State.

Kansas argues that because the Compact states that one

of the major purposes of the Compact was to “apportion

between the States of Colorado and Kansas the waters of

the Arkansas River and their utilization . . . ,” Arkansas

River Compact, Art. I-B, that means that the States and

their water users are treated as one.

Colorado agrees that one of the major purposes of the

Compact was to apportion the waters of the Arkansas

River between Colorado and Kansas and that water users

in Colorado are subject to the terms of the Compact. That

would have been true without Article VII-A of the Com-

pact. Hinderlider v. La Plata & Cherry Creek Ditch Co., 304

U.S. 92, 106 (1938). Article VII-A simply makes that

explicit. Cf. Badgley v. City of New York, 606 F.2d 358,

364-66 (2d Cir. 1979) (decree in New Jersey v. New York, 347

U.S. 995 (1954), equitably apportioning the Delaware

River and its tributaries between New York, New Jersey,

and Pennsylvania was conclusive upon all Pennsylvania

citizens and their riparian rights), cert. denied, 447 U.S.

906 (1980). Colorado agrees that Kansas can enforce the

Compact by an injunction against Colorado and that

water users in Colorado are also bound by such an

injunction. However, whether Colorado is liable for

losses, including losses to individual water users in Kan-

sas, due to depletions to usable Stateline flows caused by

the actions of private individuals in Colorado, and pre-

judgment interest on such losses, prior to the time Colo-

rado knew, or should have known, that such actions were

causing a Compact violation is a different question, and

must be answered by the terms of the Compact.

This Compact did not prohibit future beneficial

development in the Arkansas River Basin by private indi-

viduals in either State. The Compact does not address

remedies for violation of the Compact, liability for losses

suffered by individual water users in the event of a

Compact violation, or prejudgment interest. However, the

Compact did create an Administration to investigate vio-

lations of the Compact and stated that it was “the intent

of this Compact that enforcement of its terms shall be

accomplished in general through the State agencies and

officials charged with the administration of water rights.”

Arkansas River Compact, Art. VIII-H (emphasis added).

Consistent with that intent, Colorado believes that it was

the intent of the States that they would only be liable for

violations of the Compact caused by a post-Compact

development where the State knew, or had reason to

know, of the violation. Had it been the intent of the States

that they would be liable for any violation of the Com-

pact caused by a post-Compact development, the States

would have wanted an objective standard to determine

each State’s entitlement, such as the “1947 condition” in

the Pecos River Compact or Article III(d) of the Colorado

River Compact.!° Without some objective standard for

10 Article III(d) of the Colorado River Compact provides:

“The states of the Upper Division will not cause the flow of the

river at Lee[’s] Ferry to be depleted below an aggregate of

determining each State’s entitlement under the Compact,

the States would have been undertaking a risky obliga-

tion to become liable for all depletions of waters of the

Arkansas River usable to water users in the other State,

whether they knew, or had reason to know, of the viola-

tion. Without a clear expression of intent to undertake

such a liability, a compact should not be interpreted to

impose such a liability upon a state. Cf. Alden v. Maine,

527 U.S. at ___, 119 S.Ct. at __, 144 L.Ed. 2d at 675 (1999)

(noting that Congressional power to authorize suits for

compensatory damages by individuals against states

could create staggering burdens).

Kansas also argues that Colorado’s lack of knowl-

edge is “irrelevant to the issue of whether the plaintiff.

should be compensated for its loss.” Kansas Brief at 24.

Kansas argues that “[w]Jhether or not the parties had any

inkling of Colorado’s breach of the Compact in the early

years, the fact remains that Colorado had use of both

water, an asset belonging to Kansas, and the income that

it generated.” Id. at 24-25.

As the Master recognized, Colorado itself did not

have use of the water. Third Report at 101. Private indi-

viduals in Colorado, not the State of Colorado, pumped

and used the ground water. Further, usable Stateline

flows are not an asset used by the State of Kansas. Under

the laws of Kansas, private individuals and other entities

75,000,000 acre-feet for any period of ten consecutive years

reckoned in continuing progressive series beginning with the

first day of October next succeeding the ratification of this

Compact.” See Arizona v. California, 373 U.S. 546, 557-58 & n.20

(1963).

use the waters of the Arkansas River, and Article IV-D

was intended to protect water users in Kansas, not the

State of Kansas, from depletions to usable Stateline flows

caused by future development. An award of damages to

the State uf Kansas based on the losses suffered by pri-

vate individuals as the result of a violation of the Com-

pact is not “compensatory” in any ordinary sense of the

word, Third Report at 101, and an award of prejudgment

interest should not result in overcompensating Kansas.

See Commercial Union Assur. Co. v. Milken, 17 F.3d 608, 614

(2d Cir.), cert. denied, 513 U.S. 873 (1994); United States v.

Foster Wheeler Corp., 447 F.2d 100, 102 (2d Cir. 1971)

(prejudgment interest disallowed under False Claims Act

because double damages and forfeiture payments more

than made the Government whole).

If Kansas were acting as a trustee for its water users

to present and enforce their individual claims against

Colorado, an award of damages for losses suffered by

individual water users would be compensatory, but it

would also violate the 11th Amendment. See Colorado’s

Brief in Support of Its Exceptions to the Third Report of

the Special Master 13-21, and cases cited therein. Had

there been no post-Compact well pumping in violation of

the Compact, the State of Kansas would not have

received money equivalent to the losses of its water

users. Third Report at 101. The impact on the State of

Kansas would have been limited to an increase in income

tax revenues and the secondary impacts to the Kansas

economy. Id.

Thus, if the Court accepts the Master’s recommenda-

tion that Kansas should be awarded damages for all

losses resulting from depletions to usable Stateline flows

caused by post-Compact well pumping, including the

losses suffered by individual water users, such an award

is more than adequate to make the State of Kansas whole

for income tax losses and secondary impacts to the Kan-

sas economy and should not include prejudgment inter-

est. E.g., United States v. Foster Wheeler Corp., 447 F.2d at

102. Further, an award of damages based on the losses

_ suffered by individual water users in Kansas should

depend on a finding that Colorado knew, or should have

known, that post-Compact well pumping in Colorado

was depleting usable Stateline flows in violation of the

Compact, but failed to act to enforce the terms of the

Compact. At that point, an award of damages based on

the losses suffered by individual water users, while still

not compensatory, might serve the purpose of encourag-

ing a state to act to enforce the terms of the Compact. See

Arkansas River Compact, Art. VIII-H. For the reasons

previously stated, however, Colorado does not believe

that Colorado should be charged with kfiowing, or that it

should have known, that post-Compact well pumping in

Colorado was depleting usable Stateline flows in viola-

tion of the Compact until 1985, when Kansas requested

an investigation by the Administration. First Report at

155-56 (“The record supports Colorado’s assertion that no

formal complaint to the compact administration, or

indeed to any appropriate Colorado officials, was made

before 1984 (if the Simons, Li report is considered as

such) or otherwise before 1985, when Kansas asked the

compact administration to undertake an Article VIII-H

investigation.”).

Kansas further argues that, “consistent with th[e]

definition [in Article VII-A] is the Compact’s purpose to

resolve disputes and controversies, not only between the

States as such, but also ‘between citizens of one and

citizens of the other State.’ ” Kansas Brief at 26, quoting

Arkansas River Compact, Art. I-A. That was, in fact, one

of the purposes of the Compact, and states have the

power to settle disputes between their citizens over the

use of waters of an interstate river by entering into a

compact. Hinderlider, 304 U.S. at 106-08. However, merely

entering into a compact to resolve disputes and contro-

versies “between citizens of one and citizens of the other

State” does not waive the State’s 11th Amendment immu-

nity to suits by citizens of the other State. See Port Author-

ity Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 305 (1990)

(waiver of 11th Amendment immunity must be express or

by overwhelming implication from the text). Nor does it

suggest that Colorado agreed to become liable to Kansas

for all losses that occurred as a result of a violation of the

Compact by future beneficial development, including

losses suffered by individual water users in Kansas, and

prejudgment interest on such losses.

Finally, Kansas says that this Court has previously

determined in this case that Colorado “bears liability for

the actions of its water users.” Kansas Brief at 27, citing

Kansas v. Colorado, 514 U.S. at 693-94. In fact, all the Court

did was agree with the Special Master’s conclusion that

post-Compact well pumping in Colorado had caused

material depletions of the usable Stateline flows of the

Arkansas River, in violation of the Arkansas River Com-

pact. At that time, the Special Master had not determined

the amount of such depletions or when such depletions

had occurred, or whether Colorado knew, or should have

known, that post-Compact well pumping was depleting

anit

usable Stateline flows prior to 1985 when Kansas made a

complaint to the Administration. All of those issues,

including the extent of Colorado’s liability for such

depletions, were deferred to additional proceedings.

CONCLUSION

1. There is no “general rule” that prejudgment

interest should be awarded in a case such as this, absent

some exceptional circumstance. The common-law rule is

that prejudgment interest is not awarded on unliquidated

claims, and there is no reason to deviate from the com-

mon-law rule in this case.

2. Even if the Court concludes that an award of

prejudgment interest is within the sound discretion of the

Court, an award of prejudgment interest would not be

justified in this case before Colorado knew, or should

have known, that post-Compact well pumping was

depleting usable Stateline flows in violation of the Com-

pact.

3. Neither Texas v. New Mexico nor the express terms

of the Compact suggest that Colorado should be held

liable for a violation of the Compact by its water users,

regardless of whether it knew, or should have known,

that post-Compact well pumping was causing depletions

to usable Stateline flows in violation of the Compact. If

Kansas is awarded damages based on the losses suffered

by individual water users in Kansas, such an award is

more than adequate to make the State of Kansas whole

for income tax losses and secondary impacts to the

Kansas economy and should not include prejudgment

interest.

Respectfully submitted,

KEN SALAZAR

Attorney General of Colorado

Carot D. ANGEL

Senior Assistant Attorney General

Davip W. Rossins

Special Assistant Attorney General

Counsel of Record

DeNNis M. MONTGOMERY

Special Assistant Attorney General

Hitt & Rossins, P.C.

1441 - 18th Street, #100

Denver, Colorado 80202

Telephone: 303-296-8100

Attorneys for Defendant

State of Colorado

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.