# Opposition Brief — Kansas v. Colorado > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_0960%3A30 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 2001 - **Citation:** 533 U.S. 1 ## Text 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, v. STATE OF COLORADO, Defendant, UNITED STATES OF AMERICA, Defendant-Intervenor. S 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 1. 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 14 18 22 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 iv 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 Vv 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 SS 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 10 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. 11 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 12 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 13 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. ee 14 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. 15 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. 16 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 — 17 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 —_ 18 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 ~ _ 19 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 20 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 21 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. 22 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 23 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).® © Kansas argues that the simple passage of time is not a 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 —— 24 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. 25 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 Ee 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. 27 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 28 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. eo PEND alt ot RE OTD RENE 55 > 29 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). 30 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 31 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 32 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 33 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). 34 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 35 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 36 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 37 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 38 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_0960%3A30. Public record. Not legal advice.