Exception — Alabama v. North Carolina

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IN THE

Supreme Court of the United

STATE OF ALABAMA, STATE OF FLORIDA, STATE OF

TENNESSEE, COMMONWEALTH OF VIRGINIA, AND THE

SOUTHEAST INTERSTATE LOW-LEVEL RADIOACTIVE

WASTE MANAGEMENT COMMISSION,

Plaintiffs,

Vv.

STATE OF NORTH CAROLINA,

Defendant.

On Exceptions to the Preliminary and Second

Reports of the Special Master

EXCEPTIONS BY PLAINTIFFS TO THE

PRELIMINARY AND SECOND REPORTS OF

THE SPECIAL MASTER AND BRIEF

IN SUPPORT OF EXCEPTIONS

TROY KING CARTER G. PHILLIPS*

ATTORNEY GENERAL VIRGINIA A. SEITZ

ALABAMA KRISTIN GRAHAM KOEHLER

BILL MCCOLLUM ANGELA M. XENAKIS

ATTORNEY GENERAL HL ROGERS

FLORIDA SIDLEY AUSTIN LLP

ROBERT E. COOPER JR. 1501 K Street, N.W.

ATTORNEY GENERAL Washington, D.C. 20005

TENNESSEE (202) 736-8000

WILLIAM C. MIMS

ATTORNEY GENERAL

VIRGINIA

Counsel for Plaintiffs

June 24, 2009 * Counsel of Record

[Additional Counsel Listed on Inside Cover]

VVILSON-EPES PRINTING CO.,INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

OFFICE OF THE CLERK

HENRY W. JONES JR.

JORDAN PRICE WALL GRAY

JONES & CARLTON

P.O. Box 10669

Raleigh, N.C. 27605

(919) 828-2501

IN THE

Supreme Court of the United States

—

No. 132, Original

STATE OF ALABAMA, S'TATE OF FLORIDA, STATE OF

TENNESSEE, COMMONWEALTH OF VIRGINIA, AND THE

SOUTHEAST INTERSTATE LOW-LEVEL RADIOACTIVE

WASTE MANAGEMENT COMMISSION,

Plaintiffs,

STATE OF NORTH CAROLINA,

Defendant.

EXCEPTIONS BY PLAINTIFFS TO THE

PRELIMINARY AND SECOND REPORTS OF

THE SPECIAL MASTER AND BRIEF

IN SUPPORT OF EXCEPTIONS

Plaintiffs except to the following conclusions of the

Special Master:

1. Article 7(F) of the Southeast Interstate Low-

Level Radioactive Waste Management Compact (the

“Compact”), which states that the Commission may

“sanction| |” “[ajny party state which fails to comply

with the provisions ...or... fulfill the obligations” of

“this compact,” Goes not give the Commission the

authority to level monetary sanctions against a party

State when it fails to comply with the Compact. Pre-

liminary Report 15-25.

2. Even if North Carolina violated the Compact,

it was not subject to the sanctions authority of the

Commission because it withdrew from the Compact

before sanctions were imposed. Preliminary Report

25-29.

3. North Carolina did not waive its right to con-

test the legality of the sanctions proceedings even

though it attended and refused to participate in the

hearing. Preliminary Report 29-30.

4. Even though the Compact expressly provides

that the Commission is “the judge of the [party

States’] compliance with the conditions and require-

ments of this compact,” Art. 7(C), the Commission’s

determination that North Carolina breached the

Compact is neither conclusive nor entitled to any

deference from the Court. Second Report 19-20.

5. While it is undisputed that North Carolina

ceased taking any steps to license a facility in De-

cember 1997, more than 18 months before it with-

drew from the Compact, North Carolina, as a matter

of law, did not breach its duty under the Compact to

“take appropriate steps to ensure that an application

for a license to construct and operate a facility... is

filed.” Art. 5(C). Second Report 10-24.

6. The implied duty of good faith and fair dealing

does not apply to interstate compacts and North

Carolina did not withdraw from the Compact in bad

faith. Second Report 29-35.

7. North Carolina did not repudiate the Compact

when it informed the Commission that it would take

no further steps to license a facility. Second Report

24-28.

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....................ccsceseeeeess

INTRODUCTION AND SUMMARY OF THE

A.The Southeast Interstate Low-Level

Radioactive Waste Management Com-

[. THE COMMISSION'S SANCTIONS

ORDER SHOULD BE ENFORCED.............

A. The Compact Authorizes The Commis-

B. North Carolina Cannot Escape Sanc-

tions For Its Conduct As A Compact

Member By Withdrawing From The

SIN iinlussveissbiicpadnaananicobdsanjiiiadaddeiiiaipainabiiiee

lil. NORTH CAROLINA BREACHED THE

SITTINGS Tk pninsasscboossnsisatnketvenseibinabaistanesstesntenes

A. The Commission’s Determination That

North Carolina Breached The Compact

Is Conclusive Or, In The Alternative,

Entitiod To Deferemce ............0.0...0.0000.0.0s0

B. North Carolina Breached The Compact

By Failing To Take “Appropriate Steps”

To Fulfill Its Obligations As Host State ..

(1)

TABLE OF CONTENTS -— continued

Page

C. North Carolina Breached Its Implied

Covenant Of Good Faith And Fair Deal-

ET ccssnnsidtanaimpiicsintinstenioimaamamanaaeaadumatins 41

D. North Carolina Repudiated The Con-

CFACE ........-errerrrrersersscersorecsorecccrecessenesesscscees 48

Il. THE PLAINTIFFS ARE ENTITLED TO

IIIT sinvicssnscnisvidecechinniamaiseesdniicanietliiainidade 51

TIENT conseussnidesendinsinemsmainteiabaiianialibesinamidaisaaaataia 53

APPENDIX

APPENDIX A: Omnibus Low-Level Radioactive

Waste Interstate Compact Consent Act, Pub.

L. No. 99-240, tit. II, 99 Stat. 1859 (1986)....... la

APPENDIX B: Southeast Interstate Low-Level

Radioactive Waste Management Compact,

Pub. L. No. 99-240, tit. Ll, § 223, 99 Stat. 1871

CIPI ciacovccsaccsoseccinnineconnenvebeebbianudeaieniinealaaaaal 3a

lll

TABLE OF AUTHORITIES

CASES Page

Beebe v. Wash. Metro. Area Transit Auth..,

129 F.3d 1283 (D.C. Cir. 1997)................. 32, 44

Bohne v. Computer Assocs. Intl, Inc., 445

F. Supp. 2d 177 (D. Mass. 2006), rev'd on

other grounds, 541 F.3d 141 (ist Cir.

ESET EI Ceo Oe 45

Commercial Ins. Co. of Newark, N.J. v.

Gonzalez, 512 F.2d 1307 (ist Cir. 1975).... 33

Cooper Distrib. Co. v. Amana Refrigeration,

Inc., 63 F.3d 262 (3rd Cir. 1995)................ 36

Dolan v. United States Postal Ser., 546

RTE IRS A ee ae 37

Entergy Ark., Inc. v. Nebraska, 358 F.3d

EE EP CE a 45

Fid. Fed. Bank, FSB v. Durga MA Corp.,

386 F.3d 1306 (9th Cir. 2004)................04.. 30

Franconia Assocs. v. United States, 536

ERT 31, 37

Hamdan v. Rumsfeld, 548 U.S. 557 (2006)... = 27

Herb’s Welding, Inc. v. Gray, 470 U.S. 414

a ccnsumouaan 19

K Mart Corp. v. Cartier, Inc., 486 U.S. 281

ES SET ESS 20

Kansas v. Colorado, 533 U.S. 1 (2001)......... 32

Mkt. Street Assocs. Ltd. P’ship v. Frey, 941

F.2d GES C7thy Cir. 1901) .......00ccesce.ces0000.0000. 43

Mobil Oil Exploration & Producing Se.,

Inc. v. United States, 530 U.S. 604

ESSER 2 48, 52

NLRB vy. Granite State Joint Bd., Textile

Workers Union of Am., Local 1029, 409

ESE RATT a OT 24

New Jersey v. New York, 523 U.S. 767

ac ssdceenoace 26

TABLE OF AUTHORITIES — continued

Page

Oklahoma v. New Mexico, 501 U.S. 221

ESTE eR 22 2 ETON er ee 44

Old Town Trolley Tours of Wash., Inc. v.

Wash. Metro. Area Transit Comm’n, 129

ae re Cs Gs BIO cccccnscccoccccnscccsiecess 28

Organic Cow, LLC v. Ne. Dairy Compact

Comm'n, 164 F. Supp. 2d 412 (D. Vt.

2001), vacated on other grounds sub nom.

$35 F.3d 66 (2d Cir. 2003) .......ccccccccccvesos0s0 28

Randolph v. New England Mut. Life Ins.

Co., 526 F.2d 1383 (6th Cir. 1975)............ 45, 46

Russello v. United States, 464 U.S. 16

SEUIT sinsheinssesinict inal initia dicen tainatlinaaninatinn 21

Superior Bus. Assistance Corp. v. United

States, 461 F.2d 1036 (10th Cir. 1972)...... 33

Texas v. New Mexico, 462 U.S. 554

SEIT siassectcsehitiipi.dtpcibindatisenianaiaie 21, 22, 26, 29

Texas v. New Mexico, 482 U.S. 124 (1987)... 45

Tymshare, Inc. v. Covell, 727 F.2d 1145

OR ii erated 44, 46

United Roasters, Inc. v. Colgate-Palmolive

Co., 649 F.2d 985 (4th Cir. 1981) .......0.00... 45

U.S. Term Limits, Inc. v. Thornton, 514

RGR Noe tan nPUee oon enn STEM 27

U.S. Dep't of Energy v. Ohio, 503 U.S. 607

(RE SEESIRSRE RES eevee eee rere erent nmr e tere wen 18, 19

United States v. Winstar Corp., 518 U.S.

ETF en ot Se es ae ee nT 25

United Steelworkers of Am. v. Am. Mfg.

A 5 Ge Wek Ce OR icccescccnicctnccsseicerncces 30

STATUTES AND REGULATIONS

Low-Level Radioactive Waste Policy Act.

Pub. L. No. 96-573, 94 Stat. 3347 (1980) .. 4

TABLE OF AUTHORITIES — continued

Page

Omnibus Low-Level Radioactive Waste In-

terstate Compact Consent Act, Pub. L.

No. 99-240, tit. II, 99 Stat. 1859 (1986)..... 4

Southeast Interstate Low-Level Radioac-

tive Waste Management Compact, Pub.

L. No. 99-240, tit. II, § 223, 99 Stat. 1871

RESIS Se Oe Acct eRe MeN Ps passim

Rocky Mountain Interstate Low-Level Ra-

dioactive Waste Management Compact,

Pub. L. No. 99-240, tit. IL, § 226, 99 Stat.

ET Ee i Ae 22

Northeast Interstate Low-Level Radioac-

tive Waste Management Compact, Pub.

L. No. 99-240, tit. IL, § 227, 99 Stat. 1909

SSIS Ee ee eR 22, 23

Fe a istccinttsinsitsindininsntnnninvnes 23

iad ie smeicbeielaciodh 23

§ ZOZ1(A)(Z) ...cecececcecccssscecececessceeees 32

i seinen 32

1987 N.C. Sess. Laws ch. 1086 ..................... 38

ERS Cre 7

1999 N.C. Sess. Laws ch. 357 ....................... 12

es Ts Hs Te iiricdetheniceainciminitenseacaneia 7

§ 104G-4 (repealed 2000) passim

cds olagieinadeieedial 7

10 CPR. pt. Gli.ceecccececececccecccscsasesosesesesscesecnees 32

SET eles 9 RCN ae in 33

EE Eee eee 33

SCHOLARLY AUTHORITIES

1 E. Allan Farnsworth, Farnsworth on

Copsntrenstn COG. GE. BED ..ccccccceseccceccceccceess: 47

2 KE. Allan Farnsworth, Farnsworth on

Contracts (3d. ed. 2004) ....0.....0.0.0. ccc ccc eeee. 42, 50

TABLE OF AUTHORITIES — continued

Page

2A Norman J. Singer & J.D. Singer, Suth-

erland Statutes and. Statutory Construc-

EE RAST NRT TED 19

9 Arthur Linton Corbin, Corbin on Con-

tracts (Interim ed. 2002) .................... 48, 49, 51

12 Arthur Linton Corbin, Corbin on Con-

tract (Interim ed. 2002).............c...ccccccceseees 53

11 Samuel Williston & Richard A. Lord, A

Treatise on the Law of Contracts (4th ed.

ESAS AR cease ee a 27, 35

23 Samuel Williston & Richard A. Lord, A

Treatise on the Law of Contracts (4th ed.

SN icant sstaatikich iiniacdeadiedshiaaanoennasemadasimmdiens 31, 42

OTHER AUTHORITIES

Black’s Law Dictionary (7th ed. 1999).......... 19

Restatement (Second) of Contracts (1981) passim

Restatement (Third) of Restitution & Un-

just Enrichment (T.D. No. 1, 2001)............ 47

Restatement (Third) of Restitution & Un-

just Enrichment (T.D. No. 3, 2004)............ 47

Katherine Ling, Low-Level Waste Emerges

as Hurdle for New Nuclear Reactors, N.Y.

Times, March 16, 2009, available at

http://www.nytimes.com/allbusiness/

16greenwire-lowlevel-waste-emerges-as-

hurdle-for-new-react-10146.html?

INNES cciacinsiiticionnbinnieniidatatnedbiniaiindinanmins 5

PLAINTIFFS’ BRIEF IN

SUPPORT OF EXCEPTIONS TO THE

PRELIMINARY AND SECOND REPORTS OF

THE SPECIAL MASTER

INTRODUCTION AND SUMMARY

OF THE CASE

This case involves a lawsuit brought by several

States and the Southeast Interstate Low-Level Ra-

dioactive Waste Management Commission (the

“Commission”) against the State of North Carolina

for its failure to fulfill its obligations under the

Southeast Interstate Low-Level Radioactive Waste

Management Compact (the “Compact”) to license a

waste disposal facility.

Plaintiffs take exceptions to a number of the rec-

ommendations made in the Special Master’s Prelimi-

nary and Second Reports.

In Part I, Plaintiffs show that the Special Master

wrongly recommended that this Court find that the

Commission lacked authority to impose monetary

sanctions on North Carolina. The Compact provides

that “[a]ny party state which fails to comply with the

provisions of this compact or to fulfill the obligations

incurred by becoming a party state... may be subject

to sanctions by the Commission, including suspension

of its rights under this compact and revocation of its

status as a party state.” Art. 7(F). By its plain terms,

this provision includes monetary sanctions. Indeed,

this Court has held that the term “sanctions” is broad

enough to embrace monetary penalties. The Special

Master’s conclusion that the phrase “including sus-

pension ... and revocation” in Article 7(F) limits the

Commission's sanctioning authority to only those two

remedies is incorrect. “Including” is a term of expan-

sion, not limitation. That is how the Commission

read the Compact, and that reading is correct.

The Special Master’s conclusion that the Commis-

sion lost authority to sanction North Carolina for

misconduct committed while a Compact member once

North Carolina withdrew from the Compact is

equally wrong. The Compact’s sanctions provision

expressly provides: “Rights and obligations incurred

by being declared a party state to this compact shall

continue until the effective date of the sanction im-

posed or as provided in the resolution of the Commis-

sion imposing the sanction.” Art. 7(F). Thus, by its

terms, the Compact provides that the Commission

may enforce sanctions against a former party State

for the State’s acts while a member of the Compact.

In Part II, Plaintiffs show that the Special Master’s

conclusion that North Carolina did not breach the

Compact is wrong as a matter of law. Significantly,

the Compact expressly states that the Commission “is

the judge” of the party States’ compliance with its

conditions and requirements. In 1998, the Commis-

sion made an authoritative determination that North

Carolina breached the Compact when it ceased licens-

ing activities and refused to develop and operate a

waste disposal facility for the region. That determi-

nation, made pursuant to an express and unambigu-

ous delegation of authority, is conclusive. In reaching

his contrary conclusion, the Special Master failed

even to address the plain language of the Compact.

At the very least, the Court should defer to the

Commission’s fully-supported determination that

North Carolina breached the Compact. It is undis-

puted that for approximately a year and a half be-

tween the time that North Carolina ceased licensing

activities in December 1997 and the time that it

withdrew from the Compact in July 1999, North

Carolina failed to take any further steps to license a

facility. That refusal constituted nonperformance of

North Carolina’s most fundamental obligation as a

host State and was a total breach of the Compact.

North Carolina also breached the implied covenant

of good faith and fair dealing when it withdrew from

the Compact. North Carolina induced the other party

States to invest eleven years and $80 million! in its

licensing effort, and then walked away. It cited the

Plaintiffs’ failure to provide it with further funds as

the sole reason, despite the Compact’s clear state-

ment that the host State is responsible for the cost of

licensing and building the facility. Withdrawal in

these circumstances left the States with nothing to

show for the enormous investment of time and money

they had made in reliance on North Carolina’s good

faith performance.

In addition, North Carolina repudiated the Com-

pact when it informed the Commission that it would

no longer take any steps to license a facility and then

instructed the North Carolina Authority to initiate a

shutdown of the project. The Special Master did not

even address North Carolina’s clear statements of

repudiation.

North Carolina committed a total breach and repu-

diation of the Compact by refusing to render the very

performance that it agreed to exchange for the other

States’ performance, defeating the essential purpose

of the Compact and depriving the other States of the

benefit of their bargain. For these reasons, Plaintiffs

are entitled to the enforcement of the sanctions order,

or, in the alternative, restitution of the $80 million

‘ Acting on behalf of the party States, the Commission pro

vided North Carolina with $ 79,917,546.89. For ease of refer-

ence, Plaintiffs refer to this amount as $80 million throughout.

benefit they conferred on North Carolina in reliance

on the Compact, plus interest.

JURISDICTION

In June 2002, four of the member States of the

Compact and the Commission filed a motion for leave

to file a Bill of Complaint, which the Court granted.

This Court’s jurisdiction over this controversy be-

tween various States is both original and exclusive.

See U.S. Const. art. IIT, § 2, cl. 2; 28 U.S.C. § 1251(a).

The Special Master filed his Preliminary and Sec-

ond Reports with this Court on April 2, 2009. On

April 27, 2009, the Court received these Reports and

ordered them filed.

STATEMENT OF THE CASE

A. The Southeast Interstate Low-Level Ra-

dioactive Waste Management Compact

In 1980, Congress enacted the Low-Level Radioac-

tive Waste Policy Act, which was subsequently

amended by the Omnibus Low-Level Radioactive

Waste Interstate Compact Consent Act, which rati-

fied the Southeast Interstate Low Level Radioactive

Waste Management Compact (“Compact”). See Pub.

L. No. 96-573, 94 Stat. 3347 (1980); Pub. L. No. 99-

240, tit. II, 99 Stat. 1859 (1986). In these Acts, Con-

gress declared that it is primarily the responsibility

of the States to dispose of low-level radioactive waste

and encouraged the States to form regional interstate

compacts to develop disposal facilities in an efficient

and effective manner.

The States formed the Compact “for the purpose of

providing the instrument and framework for a coop-

erative effort [and for] provid[ing] sufficient facilities

for the proper management of low-level radioactive

waste generated in the region.” Art 1.2. The Com-

pact, which ts both a contract among the member

States and a federal law, was formally adopted by

Alabama, Florida, Georgia, Mississippi, North Caro-

lina, South Carolina, Tennessee, and Virginia, and

consented to by Congress on January 15, 1986.

Plaintiffs’ Statement of Undisputed Material Facts

(“Undisputed Facts”) 447, 8. The Compact created

the Southeast Interstate Low-Level Radioactive

Waste Management Commission (“Commission”)

consisting of two voting members from each party

State. Art. 4(A).

The Compact requires that each party State take a

turn at siting and operating a regional facility within

its borders. Art. 5(A). Specifically, the Compact

requires each State to serve as a “host State” for up to

20 years, or until it has disposed of 32,000,000 cubic

feet of low-level radioactive waste. Art. 5(E). By

rotating the obligation to provide a regional waste

disposal facility among the States, the Compact

“limit[s] the number of facilities required to effec-

tively and efficiently manage low-level waste gener-

ated in the region,” while “distribut[ing] the costs,

benefits and obligations of successful low-level radio-

* As discussed infra, that purpose has not been met and the

management of low-level radioactive waste continues to be a

growing public health problem across the country. Few facilities

exist to store the material and on-site storage is becoming over-

run and increasingly dangerous. See Katherine Ling, Low-Level

Waste Emerges as Hurdle for New Nuclear Reactors, N.Y. Times,

Mar. 16, 2009, available at http://www.nytimes.com/allbusiness/

l6greenwire-lowlevel-waste-emerges-as-hurdle-for-new-react-

10146. htm!?pagewanted=1. North Carolina's refusal to fulfill its

obligations under the Compact thus, not only breached the

contract with the other Compact States but exposed all of the

states to serious health hazards by delaying the creation of a

disposal facility for more than two decades.

active waste management equitably among the party

states.” Art. 1.

The Compact imposes specific duties on the host

State. It mandates that “[eJach party state desig-

nated as a host State for a regional facility shall take

appropriate steps to ensure that an application for a

license to construct and operate a facility of the des-

ignated type is filed with and issued by the appropri-

ate authority.” Art. 5(C). The Compact also declares

that “|hjost states are responsible for the availability,

the subsequent post closure observation and mainte-

nance, and the extended institutional control of their

regional facilities.” Art. 3(C); cf. Art. 4(K).

Under the Compact, the first regional disposal facil-

ity was the facility previously built and licensed in

Barnwell County, South Carolina, which was to serve

as the regional facility until December 31, 1992. Art.

7(H). The Compact authorized the Commission to

develop and implement procedures and criteria to

identify a host State for the development of a second

regional disposal facility. Art. 4(E)(6). The Compact

expressly states, however, that “[t]he Commission is

not responsible for any costs associated with,” inter

alia, “the creation of any facility.” Art. 4(K).

The Commission also has certain powers related to

the enforcement of the Compact. For example, the

Compact expressly provides that “the Commission is

the judge of the qualifications of the party states and

of its members and of their compliance with the con-

ditions and requirements of th[e] compact.” Art. 7(C).

The Commission may also “sanction[ ]” a noncompli-

ant state, “including suspension of its rights under

this compact and revocation of its status as a party

state.” Art. 7(F).

B. The Present Controversy

In September 1986, by a two-thirds majority vote,

the Commission selected North Carolina as the sec-

ond host State. Undisputed Facts { 17. Thereafter,

the North Carolina General Assembly enacted a law

establishing a siting authority, the North Carolina

Low-Level Waste Management Authority (the “Au-

thority”). N.C. Gen. Stat. § 104G, 1987 N.C. Sess.

Laws ch. 850 (App. 29-58).

In its enabling statute, North Carolina recognized

and accepted its obligation under the Compact to

“site, finance, [and] build” a facility to receive the

region’s low-level radioactive waste for disposal. N.C.

Gen. Stat. § 104G-4 (repealed 2000) (App. 34). The

North Carolina statute further provided that the

State would be repaid for its expenses from revenues

generated by the facility, once operational. See id.

§ 104G-15(a) (App. 45) (expressing intent that costs

will ultimately be borne by generators served by the

facility “established under this Chapter”); id. § 104G-

15(b)(2), (5), & (8) (App. 45). Pursuant to its obliga-

tion, North Carolina appropriated funds from the

General Assembly and began the site-selection proc-

ess. Undisputed Facts 4 18.

Thereafter, North Carolina requested that the

Commission provide financial assistance. Although

* Unless otherwise indicated, Appendix pages 1-470 are at-

tached to Plaintiffs’ Memorandum in Support of Motion for

Summary Judgment; Appendix pages 471-514 are attached to

Plaintiffs’ Opposition to Defendant North Carolina's Motion for

Summary Judgment; Appendix pages 515-57 are attached to

Plaintiffs’ Brief in Opposition to Defendant North Carolina's

Motion and Supplemental Brief for Summary Judgment; and

Appendix pages 559-69 are attached to Plaintiffs’ Reply to

Defendant North Carolina's Opposition to Plaintiffs’ Supple

mental Brief for Summary Judgment.

not obligated to do so, the Commission, on behalf of

the party States, began providing funds to North

Carolina in 1988 to assist with the development of a

facility. Undisputed Facts 99 20-21; Feb. 9, 1988,

Resolution (App. 63-65). All parties were fully aware

at this time that the Commission had no obligation to

provide funds. Undisputed Facts | 21; see also Mar.

28, 1988, Gov. Martin letter to Hodes (App. 69) (“I

have been informed that the Southeast Compact has

established a Host State Assistance Fund to as-

sist...with financial costs....” However, “the

(North Carolina] Authority is responsible for siting,

financing, building, .. . operating, . . . and closing this

regional facility.”).

Indeed, the Authority made a series of requests for

funding in specific amounts, each time with the un-

derstanding that the Commission was not obligated

to provide it, and that the Commission could refuse to

grant the Authority's funding requests. See

McMillan Dep. at 40:13-:17 (App. 470). Over the next

eleven years, the Commission provided approxi-

mately $80 million to North Carolina to assist it in

fulfilling its responsibility to site and license the

project. The funds were generated through “sur-

charges on all users of [the Barnwell regional dis-

posal] facility’ and “represent[ed] the financial com-

mitments of all party states,” as defined by the Com-

pact. Art. 4(H)(2) & (2){b).

During this same period, North Carolina experi-

enced a series of project delays and cost increases.

Undisputed Facts $9 25, 29, 35. Consequently, in

June 1992, the South Carolina Legislature voted to

allow the Barnwell facility to remain open until Janu-

ary 1, 1996. Id. 4 30. By December 1994, due to

additional delays, the North Carolina facility was not

projected to open until 1998. Jd. 4 36. Throughout

this period, North Carolina received the benefits of

Compact membership, such as the ability to dispose

of its waste at the facility in South Carolina.

As time passed South Carolina seriously doubted

that North Carolina would ever open the second re-

gional facility, and in July 1995, lawfully withdrew

from the Compact. /d. § 40. On January 5, 1996,

Commission Chairman Hodes wrote to North Caro-

lina Governor Hunt to explain that the Commission

had contributed $55 million to North Carolina in

furtherance of the waste facility project, but that

additional Commission funds would eventually be

unavailable because South Carolina’s withdrawal

meant that the Commission would no longer be able

to collect the surcharges imposed at Barnwell.

Chairman Hodes encouraged Governor Hunt to begin

considering alternative funding sources, consistent

with North Carolina’s obligations under the Compact.

Id. 9 42; see Jan. 5, 1996, Hodes letter to Hunt (App.

215).

Governor Hunt responded that he “would not rec-

ommend” that North Carolina appropriate the funds

necessary to continue the project. Apr. 8, 1996, Hunt

letter to Hodes (App. 224). Chairman Hodes sent

several subsequent letters to Governor Hunt remind-

ing him that, by law, the designated host State is

responsible for siting, licensing, building and operat-

ing the facility, and that this responsibili:y includes

providing the necessary funding. See, e.g., Apr. 25,

1996, Hodes letter to Hunt (App. 225-26); May 10,

1996, Hodes letter to Hunt (App. 227).

On June 14, 1996, Governor Hunt informed the

Commission that “North Carolina is not prepared to

assume a greater portion of the project costs. If the

Commission is not willing or able to continue funding

the North Carolina licensing effort, it simply will not

be able to proceed.” June 14, 1996, Hunt letter to

Hodes (App. 236); Undisputed Facts | 44. Governor

Hunt did not address the Commission’s position or

the Compact language stating that the Commission is

“not responsible for any costs associated with... the

creation of any facility.” Art. 4(K).

The Commission then organized a Task Force for

Facility Funding (the “Task Force”), which included

representatives from North Carolina, to study the

issue and make recommendations for funding alter-

natives. Undisputed Facts { 48. A group of regional

waste generators developed a draft Memorandum of

Understanding (“MOU”), which incorporated the

Task Force’s funding recommendations. Id. ¥ 52.

The Commission transmitted the draft MOU to

Governor Hunt in August 1997. Undisputed Facts

| 52; Sturgeon Mem. & Draft MOU (App. 289-304).

Under the proposed MOU, the Commission would

have expended the remainder of its funds, up to $22.5

million, and generators would have provided loans for

the $7-9 Million projected shortfall in funds required

to complete the licensing phase of the project. Draft

MOU 3 (App. 294). Upon transmission of the pro-

posed MOU, the Commission asked the North Caro-

lina Authority either to endorse the proposal or to

propose an alternative method of funding. Undis-

puted Facts §| 53; Aug. 29, 1997, Hodes letter to Cor-

gan (App. 308).

By December 1, 1997, North Carolina had neither

endorsed the MOU nor proposed any other funding

plan. Undisputed Facts 4 54. Instead, the North

Carolina Authority notified the Commission of the

Authority's decision to “commence the orderly shut-

down of the project,” pending the Commission’s re-

versal of its position regarding funding or different

instructions from the North Carolina Legislature.

See Dec. 19, 1997, Corgan letter to Hodes (App. 319);

Undisputed Facts 4] 55. Thus, North Carolina condi-

tioned its continued performance on more funding

from the Commission, a demand that contradicted

the express terms of the Compact. See Art. 4(K).

The Commission notified the North Carolina Au-

thority in January 1998, and again in April 1999,

that it had determined the shutdown constituted a

breach of the Compact by North Carolina. Undis-

puted Facts 44] 56-57. North Carolina took no action

in response and, by its own admission, “did not [after

December 1997] take additional steps to site, charac-

terize, and, ultimately, license a waste disposal facil-

ity.”* North Carolina’s Admissions § 11; Undisputed

Facts § 9 57-58.

On June 21, 1999, the Commissioners of the States

of Florida and Tennessee filed with the Commission a

Sanctions Complaint against North Carolina. Undis-

puted Facts § 58. The Sanctions Complaint alleged

that

|b]y its actions to cease all activities in pursuit of

a license to build the second regional low-level

radioactive waste (LLRW) disposal facility for

the Southeast Interstate Low-Level Radioactive

Waste Compact (Compact), the State of North

Carolina has failed to fulfill its obligations . . . to

provide a disposal facility for the Southeast re-

gion.

* Indeed, the Authority ceased operation prior to any licensing

determination. See Def. Mot. Summ. J. at 7 (“Ultimately, no

license was issued because, at the time the Commission stopped

providing funding support for the Authority's efforts in 1997, the

DRP had not yet determined that the site could be safely li-

censed.”).

Sanctions Compl. (App. 325). The Sanctions Com-

plaint requested, inter alia, return of the $80 million

in funds the Commission, on behalf of the party

States, had provided to North Carolina to assist in

the licensing and development of the disposal facility,

plus interest from the date North Carolina ceased

activities to develop the facility. Undisputed Facts

{| 58; Sanctions Compl. (App. 327).

On July 26, 1999, North Carolina purported to ex-

ercise its rights under Article 7(G) of the Compact to

withdraw from the Compact. Undisputed Facts 9 59;

1999 N.C. Sess. Laws ch. 357. North Carolina

claimed that it “had no option but to” withdraw as a

result of the Commission’s breach of the Compact (by

terminating supplemental funding as of December 1,

1997). Dec. 1, 1999, Easley letter to Hodes (App.

339).

In August 1999, the Commission initiated a formal

inquiry into the Sanctions Complaint filed against

North Carolina. Undisputed Facts 4 60. The North

Carolina Attorney General asserted that, having

withdrawn from the Compact, North Carolina was no

longer subject to the Commission’s jurisdiction. 7d.

“| 62; see Dec. 1, 1999, Easley letter to Hodes (App.

340). The Attorney General also informed Chairman

Hodes that North Carolina would not participate in

the sanctions proceeding. Dec. 1, 1999, Easley letter

to Hodes (App. 340).

The Commission held a Sanctions Hearing on De-

cember 8, 1999 presided over by retired D.C. Superior

Court Judge Curtis VanKann. Undisputed Facts

{| 63; Sanctions Hr’g Tr. (App. 341-98). The Commis-

sion heard testimony and received documentary evi-

dence from the States of Florida and Tennessee.

Sanctions Hr’g Tr. 16-72 (App. 347-61). All Commis-

sioners were permitted to ask questions and make

comments. Jd. at 1-144 (App. 344-79). Comments

also were received from members of the public. Jd. at

7-8, 97-98 (App. 345, 368). In addition, North Caro-

lina had a representative from its Office of the Attor-

ney General present at the hearing and was provided

the opportunity to offer testimony or other evidence

on its behalf. North Carolina declined to exercise its

right to participate in the hearing.

By a unanimous vote of those participating, the

Commission determined, pursuant to Article 7(C) of

the Compact, that North Carolina had “failed to com-

ply with the provisions of the Compact and failed to

fulfill the obligations incurred by becoming a party

state to th[e] Compact.” Undisputed Facts § 64; Dec.

9, 1999, Sanctions Res. (App. 412). Consequently, the

Commission voted to require North Carolina to repay

the approximately $80 million in funds it had re-

ceived from the party States via the Commission,

plus interest. Sanctions Res. (App. 412). The Com-

mission also determined that according to its author-

ity under Article 7(F), it had the authority to level

sanctions against North Carolina even after it had

withdrawn from the Compact. 7/d.; see also Art. 7(F)

(“Rights and obligations incurred by being declared a

party state to this compact shall continue until the

effective date of the sanction imposed or as provided

in the resolution of the Commission imposing the

sanction.”). The Commissioners unanimously adopt-

ed a resolution directing the Commission to work

with outside counsel to represent the party States in

court against North Carolina, in the event that North

Carolina failed to comply with sanctions. Undisputed

Facts § 64; Dec. 9, 1999, Sanctions Res. (App. 412).

North Carolina did not comply.

C. Judicial Proceedin-~<-

After this Court denied an initial motion for leave

to file a bill of complaint naming only the Commis-

sion as plaintiff, four member States of the Compact

and the Commission filed a motion for leave to file a

Bill of Complaint in June 2002. This Court granted

that motion; the Bill of Complaint was deemed filed;

and North Carolina was ordered to respond to the

Complaint.

North Carolina filed a motion to dismiss the Com-

mission as a party, arguing that North Carolina’s

sovereign immunity barred the Commission’s claims.

The Supreme Court referred this matter to the Spe-

cial Master.

Before the Special Master, Plaintiffs filed a motion

for summary judgment, seeking enforcement of the

Commission’s sanctions order. North Carolina filed a

motion to dismiss the Bill of Complaint, arguing that

the Compact did not authorize the Commission to

impose monetary sanctions; that North Carolina was

no longer subject to the Commission’s jurisdiction;

and that the only remedies available to Plaintiffs

were those provided in the Compact.

In June 2006, the Special Master issued a Prelimi-

nary Report, recommending that North Carolina’s

motion to dismiss the Commission be denied, that

Plaintiffs’ motion for summary judgment be denied,

and that North Carolina’s motion to dismiss the Bill

of Complaint be granted in part and denied in part.

With respect to North Carolina’s motion to dismiss

the Commission, the Special Master recommended

that the Commission be allowed to participate in the

action because it asserts the same claims and seeks

the same relief as the Plaintiff States. Preliminary

Report 13 (citing Arizona v. California, 460 U.S. 605

(1983)).

As to Plaintiffs’ motion for summary judgment, the

Special Master recommended that the motion “be

denied because the Compact does not authorize the

Commission to impose monetary sanctions against

member States, and because North Carolina with-

drew from the Compact prior to the imposition of

sanctions.” Jd. at 14. The Special Master noted,

however, that “[djenial of Plaintiffs’ mo-

tion... merely means chat the Commission’s sanc-

tions order should not be summarily enforced. It does

not mean that North Carolina faces no potential li-

ability as a matter of law with respect to the Plain-

tiffs’ other claims” for breach of contract and the

common law. 7d. at 14-135.

As to North Carolina’s motion to dismiss the Bill of

Complaint, the Special Master recommended that the

motion be granted with respect to the Plaintiffs’ re-

quest that the sanctions order be enforced. /d. at 38.

With respect to the remainder of the Bill of Com-

plaint, the Special Master recommended that North

Carolina’s motion be denied. Jd. The Special Master

rejected North Carolina’s argument that the remedies

provided in the Compact are the exclusive remedies

available for breach of the Compact. Id. at 33-36.

Accordingly, he found that “further proceedings

[were] necessary to determine whether North Caro-

lina in fact breached its obligations under the Com-

pact.” Jd. at 36.

The parties did not seek this Court’s immediate re-

view of the Preliminary Report. Instead, they en-

gaged in discovery, which eventually was suspended

in order to file cross-motions for summary judgment.

Plaintiffs moved for summary judgment with respect

to the Breach of Compact count on the grounds that

North Carolina breached the Compact and that

Plaintiffs are entitled to restitution of the $80 million

the States provided North Carolina in reliance on the

Compact, plus interest. North Carolina moved for

summary judgment on all of Plaintiffs’ claims.

In his Second Report, the Special Master recom-

mended that this Court find that North Carolina did

not breach the Compact. According to the Special

Master, the Compact’s requirement that a host State

take “appropriate steps” to license a facility is am-

biguous; and, under the Compact as modified by the

parties’ course of performance, North Carolina took

the appropriate steps required by the Compact. Sec-

ond Report 10-28. The Special Master also decided

that North Carolina’s withdrawal did not violate its

implied covenant of good faith and fair dealing. He

concluded that (i) the covenant of good faith, read

into all contracts, probably should not be read into

interstate compacts, and (ii) if it were, North Caro-

lina’s decision to cease performance when the Com-

mission ceased paying did not breach that duty. IJd.

at 29-35. Thus, the Special Master recommended

that this Court deny Plaintiffs’ Motion for Summary

Judgment on Breach of Contract and grant North

Carolina’s Motion for Summary Judgment on that

count.§

The Special Master filed both his Preliminary and

Second Reports with this Court. He noted that the

remaining claims were alternatives to Plaintiffs’

breach of contract claims, which would not be liti-

6In addition, the Special Master recommended that North

Carolina's Motion for Summary Judgment on Unjust Enrich-

ment, Promissory Estoppel, and Money Had and Received be

denied as requiring further briefing and argument and, poten-

tially, further discovery. See Second Report 41.

gated if this Court rejected his recommendations on

the claims for sanctions and breach of contract. Id. at

48-49.

On April 27, 2009, the Court received and ordered

filed the Reports of the Special Master, and ordered

the Parties to file Exceptions.

ARGUMENT

I. THE COMMISSION’S SANCTIONS ORDER

SHOULD BE ENFORCED.

A. The Compact Authorizes The Commis-

sion To Impose The Sanction Of Restitu-

tion.

The Compact provides:

Any party state which fails to comply with the

provisions of this compact or to fulfill the obliga-

tions incurred by becoming a party state to this

compact may be subject to sanctions by the Com-

mission, including suspension of its rights under

this compact and revocation of its status as a

party state.

Art. 7(F) (emphasis added).

After a formal evidentiary hearing - at which

North Carolina was in attendance but refused to

participate -- the Commission determined that North

Carolina had “failed to comply with the provisions of

the Compact and failed to fulfill the obligations in-

curred by becoming a party to th{[e] Compact.” Dec. 9,

1999 Sanctions Res. (App. 412); Undisputed Facts

{ 64. The Commission made this determination pur-

suant to its authority as “the judge of [the party

States’] compliance with the conditions and require.

ments of this compact.” Art. 7(C). As set forth in

detail infra at LL.A, this determination of breach is

conclusive or, at the very least, entitled to deference. ®

Following the Commission’s determination of

breach, it imposed a monetary sanction. In doing so,

it necessarily interpreted the Compact to give it this

authority. This interpretation’is reasonable and is,

indeed, the best reading of the Compact language.

Pursuant to this Court’s precedent, ordinary usage,

and the specific context, the term “sanctions” includes

monetary sanctions; and thus, the Commission’s

sanction’s order should be given effect by this Court.

See U.S. Dep't of Energy v. Ohio, 503 U.S. 607, 621

(1992).

Instead, the Special Master decided that the Com-

pact clause providing that sanctions “includ[e] sus-

pension of [a State’s] rights under this compact and

revocation of its status as a party state” was intended

to dramatically narrow the Commission’s authority to

impose sanctions. He disregarded the Commission’s

reading of this Compact provision and read the clause

de novo to indicate that the Commission could sus-

pend or expel members, but could not fine a member

or impose other monetary sanctions. Thus, the Spe-

cial Master concluded that the sole sanction that the

Commission could impose on a host State that

breaches its obligations and then withdraws is expul-

sion. But this “sanction” gives that State precisely

what it wants — to avoid its obligation to host a waste

disposal facility. Preliminary Report 28.

The Special Master gave four reasons for his con-

clusion. Each lacks merit.

— — — _ ——

* The Commission “is the judge” of the party States’ compli-

ance with the Compact, Art. 7(C), and thus is entitled to deter-

mine whether a party state has breached the Compact. See

infra atlbA.

First, the Special Master asserted that “including,”

in the Compact, actually means “limited to” and,

therefore, the “sanctions” available do not include

monetary awards. But, application of this Court’s

precedent, scholarly consensus, and common sense

lead to the conclusion that the term “including” here

does not limit the sanctions to those listed or preclude

monetary sanctions. A sanction is “[a] penalty or

coercive measure that results from failure to comply

with a law, rule, or order.” Black’s Law Dictionary

1341 (7th ed. 1999). This Court has stated that when

a sovereign submits itself to “sanctions,” it is thereby

subject to monetary sanctions of one variety or an-

other: “As a general matter, the meaning of ‘sanction’

is spacious enough to cover... punitive fines... .”

U.S. Dep’t of Energy, 503 U.S. at 621. Moreover,

“(w]hen ‘include’ is utilized, it is generally improper

to conclude that entities not specifically enumerated

are excluded.” 2A Norman J. Singer & J.D. Singer,

Sutherland Statutes and Statutory Construction

§ 47.23 (7th ed. 2004). This is because “the word

“includes” is usually a term of enlargement, and not

of limitation.” Jd. at § 47.7. As this Court recognized

in Herb’s Welding, Inc. v. Gray, 470 U.S. 414, 423 n.9

(1985). “[b]y use of the term ‘including’ Congress

indicated that the specifically mentioned [items] are

not exclusive.” Therefore, the “including” clause

should not be construed to limit the imposition of

other appropriate sanctions.

‘The Special Master also failed to give weight to the

entirety of the sanctions provision. The Compact’s

sanctions provision concludes: “Rights and obliga-

tions incurred by being declared a party state to this

compact shall continue until the effective date of the

sanction imposed or as provided in the resolution of

the Commission imposing the sanction.” Art. 7(F).

The Compact thus necessarily authorizes some sanc-

tion that can be applied to a party state that ceases to

be a party after the sanction is imposed. This provi-

sion is meaningless if one accepts the Special Mas-

ter’s reading that sanctions are limited to suspension

or revocation of a party State’s membership status;

neither of these sanctions would be relevant to a

State that has already withdrawn.

As a whole, Article 7(F) is best read to authorize

the Commission to assess monetary sanctions against

the Defendant. See K Mart Corp. v. Cartier, Inc., 486

U. S. 281, 291 (1988) (“In ascertaining the plain

meaning of [a] statute, the court must look to the

particular statutory language at issue, as well as the

language and design of the statute as a whole.”)

Second, the Special Master concluded that the

Compact must contain a “clear statement” that au-

thorizes monetary sanctions against a State. Ini-

tially, as explained above, the Compact does clearly

provide for monetary sanctions. But even if it did

not, it is inappropriate to impose a clear-statement

rule on the interpretation of a contract among co-

equal sovereign states.

The Special Master pointed to Article 3, which

reads, in part: “The rights granted to the party states

by this compact are additional to the rights enjoyed

by sovereign states, and nothing in this compact shall

be construed to infringe upon, limit, or abridge those

rights.” The Special Master then contended that in

light of this provision, the Court should read an im-

plied clear-statement rule into the Compact — i.e., a

rule that without a “clear statement,” monetary sanc-

tions are not allowed. Preliminary Report 18. For

several reasons, this reading is incorrect.

Article 3 neither states nor implies a clear-

statement rule. And “courts have no power to substi-

tute their own notions” in place of the text of the

Compact. Texas v. New Mexico, 462 U.S. 554, 568

(1983) (quotation marks omitted). Additionally, im-

posing a clear-statement rule would run afoul of an-

other Compact provision, Article 9, which provides:

“The provisions of this compact shall be liberally

construed to give effect to the purposes thereof.”

Finally, the Special Master’s interpretation of Article

3 appears to be based on a special solicitude for

states’ rights, which is — at most — appropriate when

states contract with private parties; it is not, how-

ever, appropriate when states contract with coequal

sovereigns.

Third, the Special Master sought to narrow the

Commission’s sanctions power by comparing the

Southeast Compact’s language with that of other

compacts. He noted that other compacts use the

words “fines” or “sum,” and that those words author-

ize the relevant compact commission to impose mone-

tary sanctions. The Special Master contended that

the express reference to monetary sanctions in other

compacts means that the absence of such a reference

in the Southeast Compact indicates that such sanc-

tions were excluded. Preliminary Report 22.

The general presumption, that such differences,

when found within a single federal statute, are sig-

nificant, does not apply here. See Russello v. United

States, 464 U.S. 16, 23 (1983). Congress authorized

independent regional negotiation of low-level radioac-

tive waste compacts. And, each compact was negoti-

ated independently. There is no evidence in this

record that any compact negotiators were informed

about either the negotiation or text of the other com-

pacts. There is simply no basis for any interpretation

of the language of the Southeast Compact by compar-

ing it to the text of other regional Compacts.’

In any event, the comparison of the regional Com-

pacts’ sanctions language yields conflicting results.

For example, the Southeast Compact and the North-

east Compact are the only compacts that generally

authorize “sanctions.” Northeast Interstate Low-

Level Radioactive Waste Management Compact, Pub.

L. No. 99-240, tit. II, § 227, Art. ITV(D(14), 99 Stat.

1909, 1915 (1986). The Rocky Mountain Compact

does not authorize sanctions generally; it allows only

exclusion. Rocky Mountain Interstate Low-Level

Radioactive Waste Management Compact, Pub. L.

No. 99-240, tit. II, § 226, Art. VIII(e), 99 Stat. 1902,

1909 (1986). Under the Special Master’s reasoning,

the absence of the term “sanctions” in the Rocky

Mountain Compact and its inclusion in the others

would mean that the Rocky Mountain Compact gen-

erally forbids sanctions. And, the Southeast Compact

and Northeast Compact’s broader provision — their

general authorization of sanctions — should mean

that these compacts authorize sanctions beyond ex-

clusion. But, the Special Master ignored those com-

parisons. In sum, this interpretation by comparing

sanctions clauses is an arbitrary methodology that

should not be used, particularly when it does violence

to the plain language of the Compact.

7In Texas v. New Mexico, 462 U.S. at 565, this Court cited the

text of contemporaneously negotiated compacts to support its

reading. But, here, the undisputed record shows that the party

States were not aware of the language of other interstate low-

level radioactive waste compacts when they negotiated the

Southeast Compact. See Setser Dep. Tr. at 14-15 (App. 498)

(Testimony by Mr. Setser, the 30(b)(6) deponent for the Com-

mission and onc of the initial drafters of the Compact).

Fourth and finally, the Special Master expressed

concern that Plaintiffs’ interpretation would allow the

Commission to issue sanctions without limitation.

Preliminary Report 18. But, general laws authoriz-

ing remedies and penalties routinely do so without

express limits on the amount or types of relief. See,

e.g., 42 U.S.C. § 1983; id. § 2000e-5(g)(1). Courts

regularly interpret such laws, limiting damages to

compensatory damages or reasonable punitive dam-

ages, and allowing some injunctions and not others.

We are aware of no authority that the absence of an

express limit on damages or penalties renders simple

monetary fines wholly unavailable. In fact, the Spe-

cial Master cited the Northeast Compact as an exam-

ple of a Compact that provides for damages, see Pre-

liminary Report 22, even though it lacks any express

limit on damages. Northeast Compact, § 227, Art.

[V(D(14), 99 Stat. at 1915.

The Compact should be read to authorize the sanc-

tions that the Commission voted to impose.

B. North Carolina Cannot Escape Sanc-

tions For Its Conduct As A Compact

Member By Withdrawing From The

Compact.

The Special Master's conclusion that North Caro-

lina may evade sanctions by withdrawing on the eve

of its sanctions hearing is mistaken and contrary to

both the Compact’s text and the Commission’s deter-

mination, which is entitled to deference. See supra at

18; infra at 28-30.

As noted, Article 7(F), the Compact’s sanction pro-

vision, specifies: “Rights and obligations incurred by

being declared a party state to this compact shall

continue until the effective date of the sanction im-

posed or as provided in the resolution of the Commis-

sion imposing the sanction.” Thus, the Compact text

provides a straightforward answer to the question

whether withdrawal prevents the Commission from

imposing sanctions. Apart from noting Plaintiffs’

reliance on this provision, the Special Master did not

even mention this text, let alone explain why it does

not govern resolution of this question. Instead, he

concluded that North Carolina may render the Com-

pact a nullity by allowing the host State to immunize

itself from any sanction simply by withdrawing.

The Special Master’s Report suggested two reasons

for his recommendation. First, he implied, without

explicitly saying, that the Southeast Compact, unlike

other Compacts, does not “authorize imposition of

sanctions on States even after they have withdrawn.”

Preliminary Report 26. Here, he is simply wrong;

Article 7(F) of the Southeast Compact does provide

such an authorization.

Next, the Special Master cited other Compacts that

include limits on withdrawal to indicate that the

Southeast Compact does not limit withdrawal. From

this he concluded that a state has unlimited discre-

tion to withdraw to escape a sanctions ruling. Pre-

liminary Report 26-27 (citing Central Midwest Inter-

state Low-Level Radioactive Waste Management

Compact, Pub. L. No. 99-240, Art. VIII(d), 99 Stat.

1880, 1891 (1986) and Midwest Interstate Low-Level

Radioactive Waste Management Compact, Pub. L. 99-

240, Art. VIII(e), 99 Stat. 1892, 1900 (1986)). The

Special Master’s premise does not support his conclu-

sion. Plaintiffs agree that North Carolina can with-

draw from the Compact. But, North Carolina’s with-

drawal does not relieve it of previously incurred obli-

gations, including sanctions obligations, arising out of

its status as a party for conduct that occurred while it

was a party. See NLRB vy. Granite State Joint Bd.,

Textile Workers Union of Am., Local 1029, 409 U.S.

213, 216 (1972) (“[T]he law which normally is re-

flected in our free institutions [is] the right of the

individual to join or to resign from associations, as he

sees fit subject of course to any financial obligations

due and owing the group with which he was associ-

ated.”) (quotation marks omitted).

Neither the Compact’s text nor settled legal princi-

ples support the Special Master’s recommendation

that North Carolina is permitted to ese#pe sanctions

for its conduct as a member by withdrawing. Nor

would such an outcome further the purposes of the

Compact. Art. 9. If a party state can simply walk

away from the consequences of misbehavior as a

member there is little incentive to act for the good of

the region. Instead, there is every incentive to take

what the Compact offers, violate the Compact until

the other members decline to tolerate it, and then

abandon the shared enterprise without consequence.

Any such Compact “would, indeed, have been mad-

ness” and that is reason enough not to interpret the

Compact to permit this result. United States v. Win-

star Corp., 518 U.S. 839, 910 (1996) (plurality opin-

ion).

Il. NORTH CAROLINA BREACHED THE

COMPACT.

A. The Commission’s Determination That

North Carolina Breached The Compact

Is Conclusive Or, In The Alternative,

Entitled To Deference.

The Compact expressly and unequivocally provides

that “[t]he Commission ts the judge of [the party

States’] compliance with the conditions amd require-

ments of this compact.” Art. 7(C) (emphasis added).

In January 1998, and again, in April 1998 — before

North Carolina’s withdrawal — the Commission exer-

cised this authority and determined that North Caro-

lina breached the Compact when, after soliciting $80

million to fulfill its Compact obligations, it ceased

performance and refused to fulfill its obligation as

host State to develop and operate a regional waste

disposal facility. See Jan. 12, 1998, Hodes letter to

Corgan (Joint Supp. Fact Br. App. 55) (“It is the

stated position of the Commission that this consti-

tutes a breach of the compact law by the State of

North Carolina, which is obligated to proceed with

the funding and the establishment of the facility.”);

see also Apr. 26, 1999, Hodes letter to Hunt (App.

323). The Commission reiterated this determination

after North Carolina withdrew from the Compact.

Dec. 9, 1999 Sanctions Res. (App. 412) (“North Caro-

lina failed to comply with the provisions of the Com-

pact and failed to fulfill the obligations incurred by

becoming a party state to this Compact.”). Under the

Compact, as agreed to by North Carolina, the Com-

mission’s determination of breach is conclusive.

When faced with a dispute arising from an inter-

state compact, this Court looks first and foremost to

the language of the compact. New Jersey v. New

York, 523 U.S. 767, 811 (1998). The express terms of

the compact are determinative. Jd. Where the com-

pact’s terms specify the extent and limits of the

Court’s role in adjudicating disputes arising out of

the compact, those terms are controlling. Texas, 462

U.S. at 567-68 (“The question for decision, therefore,

is what role the .. . Compact leaves to this Court.”).

Here, the express terms of the Compact are clear:

Congress and the party States vested the Commis-

sion with the sole power to “judge” whether a party

State breached the Compact. Art. 7(C). Thus, under

the Compact, any court addressing a claim that in-

volves the question whether a party State has

breached the Compact should accept the Commis-

sion’s judgment of breach or non-breach. Cf. Hamdan

v. Rumsfeld, 548 U.S. 557, 623 (2006) (“[C]omplete

deference is owed [a] determination” made by the

President under a statute granting him authority to

make such a determination.); U.S. Term Limits, Inc.

v. Thornton, 514 U.S. 779, 804 (1995) (Art. I, § 5, cl. 1

of the Constitution, which provides that “{e]ach

House shai be the Judge of the Elections, Returns

and Qualifications of its own-Members,” gives Con-

gress “the final say.”) (emphasis added).

This concept has deep roots in the common law of

contracts. See 11 Samuel Williston & Richard A.

Lord, A Treatise on the Law of Contracts, § 31:5, at

298-99, 303-05 (4th ed. 1999) (“[T]he courts properly

and steadfastly reiterate the well-established princi-

ple that it is not the function of the judiciary to

change the obligations of a contract which the parties

have seen fit to make... . Thus, when interpreting a

contract, a court may not delete contractual provi-

sions ... even if the resulting contract would be eco-

nomically more efficient or advantageous to one or

both parties, or more fair or equitable than the

agreement the parties were satisfied to make.”). This

Court should enforce the Compact’s express agree-

ment and statutory mandate that the Commission is

the “judge” of breach.

In his decision, the Special] Master never addressed

the explicit language of Article 7(C). Instead, he

erroneously implied that the question of the Commis-

sion’s authority to judge breach was determined in

the Preliminary Report. See Second Report 19. In

fact, the Preliminary Report analyzed only Article

7(F) and the Commission's authority to sanction

party States — not Article 7(C) and the Commission's

authority to determine breach, whether enforceable

through sanctions or through a claim for breach of

Compact in the courts. The question whether the

Commission has authority to sanction party States is

wholly independent of the question whether the

Commission has the authority conclusively to deter-

mine a member’s breach. The latter authority arises

from Article 7(C) of the Compact — a part of the

agreement never addressed in either the Preliminary

or Second Report.

If, however, this Court concludes that a court ad-

dressing a claim of breach must engage in some re-

view of the Commission’s judgment, that review

should be highly deferential. The D.C. Circuit has

held that the actions of an interstate compact com-

mission, when reviewable at all, should be reviewed

under the Administrative Procedure Act’s (“APA's”)

deferential arbitrary-and-capricious standard. See

Old Town Trolley Tours of Wash., Inc. v. Wash.

Metro. Area Transit Comm'n, 129 F.3d 201, 204 (D.C.

Cir. 1997) (“[O]ur review should not be de novo. That

would deprive the Commission’s judgment of impor-

tance and would, in effect, place the court in the posi-

tion of the licensing authority.”); see also Organic

Cow, LLC v. Ne. Dairy Compact Comm'n, 164 F.

Supp. 2d 412, 423-25 (D. Vt. 2001) (applying the arbi-

trary-and-capricious standard of review to the deci-

sion of an interstate compact commission), vacated on

other grounds sub nom. 335 F.3d 66 (2d Cir. 2003).

This was so, the court reasoned, not because an inter-

state compact commission is a federal agency subject

to the APA, but because the APA’s codification of the

arbitrary-and-capricious standard “merely restated

the present law as to the scope of judicial review.”

Old Town Trolley, 129 F.3d at 205 (“[F]ederal judicial

review of agency action according to the standards

just quoted is so commonplace that... it would have

been natural to assume that courts would treat

Commission decisions in the same manner.”).

In Old Town Trolley, the compact at issue was si-

lent as to the arbiter of disputes, and the D.C. Circuit

nonetheless applied a deferential standard of review.

Here, the Compact expressly provides that the Com-

mission “is the judge . . . of [party States’] compliance

with the conditions and requirements of this com-

pact.” Art. 7(C). Accordingly, the Commission’s de-

termination, if reviewable at all, should be set aside

only if arbitrary or capricious. And, far from arbi-

trary or capricious, the Commission’s determination

that North Carolina breached the Compact is, as

shown infra, correct.

The Special Master was concerned that deference to

the Commission’s decision would be inconsistent with

this Court’s original jurisdiction. See Second Report

19-20. The opposite is true. This Court has empha-

sized the need to enforce compacts by their express

terms. See supra at 26. Indeed, in Texas, the Court

limited its deference to the compact commission be-

cause of the specific terms of the compact at issue —

not because of any concern about the nature of its

original jurisdiction. See 462 U.S. at 568 & n.14

(original jurisdiction did not “militate against New

Mexico’s theory” of deference, rather the compact

expressly provided that the commission’s determina-

tions “shall not be conclusive in any court”) (emphasis

added). Here, the Compact’s express terms state that

the Commission “is the judge” of whether a party has

complied with the terms of the Compact.

This Court routinely upholds deferential review

when commanded by statute and/or contract without

any negative implication for the dignity of its juris-

diction. For example, when parties to a contract

agree to submit their disputes to arbitration, judicial

review of the arbitrator’s award is strictly limited.

See, e.g., United Steelworkers of Am. v. Am. Mfg. Co.,

363 U.S. 564, 567-58 (1960) (“The function of the

court is very limited when the parties have agreed to

submit all questions of contract interpretation to the

arbitrator.”).

Here, the parties agreed that the Commission

would be the arbiter of their differences concerning

breach.® A reviewing court’s role, therefore, is limited

by statute and contract, just as in arbitration. The

Commission’s determination that North Carolina

breached the Compact should be accepted and af-

firmed by this Court.

B. North Carolina Breached The Compact

By Failing To Take “Appropriate Steps”

To Fulfill Its Obligations As Host State.

As host State, North Carolina was required to “take

appropriate steps to ensure that an application for a

license to construct and operate a facility of the des-

* The Special Master asserted that the Commission was bi-

ased against North Carolina in determining breach. See Second

Report 19. That accusation is incorrect and without basis in the

record. North Carolina assisted in creating the process for

determining breach, both during the original Compact negotia-

tions and in chairing the Committee that created the Adminis-

trative Sanctions Procedure. Undisputed Facts 9 63. North

Carolina knew the membership of the Commission and its role

as the arbiter of breach. ‘The hearing was presided over by

retired Judge VanKann. North Carolina was also given the

opportunity to participate in the Commission's determination

and never raised bias as an issue until long after the Commis-

sion’s determination, id., thus, forfeiting this claim. See Fid.

Fed. Bank, FSB v. Durga MA Corp., 386 F.3d 1306, 1313 (9th

Cir. 2004) (party's failure to object to partiality of an arbiter

with a known conflict until after the arbiter’s determination

waives the party's ability to challenge) (collecting cases).

ignated type [was] filed with and issued by the ap-

propriate authority.” Art. 5(C). North Carolina as-

sumed this duty when it was designated as host State

in 1986, and that duty remained in force at least until

North Carolina withdrew from the Compact in July

1999.

The Special Master recognized, however, that

North Carolina’s “efforts to complete the licensing

process essentially ceased at the end of 1997.” Sec-

ond Report 18. Indeed, in December 1997, North

Carolina voted to shut down the waste facility pro-

ject, and, by its own admission, refused to take fur-

ther steps to license a facility. See North Carolina

Admissions § 11 (after December 1997, “the Author-

ity did not thereafter take additional steps to site,

characterize, and, ultimately, license a waste disposal

facility.”) (emphasis added); Undisputed Facts ¥ 56;

see also Second Report 10 (“The parties do not dis-

pute that North Carolina did not take additional

steps to pursue a license for a waste facility [from

December 1997 until it withdrew}.”).

That fact — that as of December 1997, North Caro-

lina refused to pursue the license to build the re-

gional low-level radioactive waste disposal facility —

necessarily means that North Carolina breached its

Compact obligation to take “appropriate steps” to-

wards licensing. As a matter of law, North Carolina’s

failure to do so constituted non-performance of its

express duty under Article 5(C). See Franconia As-

socs. v. United States, 536 U.S. 129, 142-43 (2002)

(“Failure by the promisor to perform at the time indi-

cated for performance in the contract establishes an

immediate breach.”); see also Restatement (Second) of

Contracts § 235(2) (1981) (“When performance of a

duty under a contract is due any non-performance is a

breach.”) (emphasis added); 23 Williston & Lord,

supra, § 63:1, at 436 (“(Wjhen performance is due,

anything short of full performance is a breach.”).9

The Commission, therefore, is entitled to a judgment

of breach.

The Special Master declined to adopt this straight-

forward interpretation of North Carolina’s obligation

to take “appropriate steps.” Instead, he found the

term ambiguous and, by examining the parties’

course of performance, ultimately concluded appro-

priate steps included doing nothing towards licensing

a facility. The Speciai Master's analysis is wrong for

several reasons, as set forth below. Indeed, it is hard

to imagine how a party who ceases performance alto-

gether could be taking “appropriate steps” towards

fulfilling its obligations as the host State.

First, in the context in which it was used, the term

“appropriate steps’ is not ambiguous. It means pro-

ceeding through the steps required to hcense a waste

disposal facility. The meaning of this Compact provi-

sion is informed by the Atomic Energy Act of 1954, as

amended by the Low-Level Radioactive Waste Policy

Amendments Act of 1985, and fully set out in the

United States Nuclear Regulatory Commission

(“NRC”) regulations. See 10 C.F.R. pt. 61.'° The laws

* Federal common-law contract principles govern the interpre-

tation and enforcement of interstate compacts. E.g., Kansas v

Colorado, 533 US. 1, 10-14 (2001) (relying on common-law

contract rules); Beebe v. Wash Metro. Area Transit Auth., 129

F.3d 1283, 1288-90 (D.C. Cir. 1997) (interstate compact is fed-

eral law and its interpretation and application are governed by

federal common law).

'° Under the Act, compacting states must site and hcense fa-

cilities as set out in the NRC regulations for licensing the dis.

posal of radioactive waste. See 42 U.S.C. § 202l1d(b)\(3); td

§ 2021(d)(2); see also Art. 6{(A)(2). The NRC regulations deta.)

the steps necessary to lheense and construct a low-level radioac

and regulations lay out appropriate steps towards

licensure of a low-level radioactive waste facility.

“(When parties contract with reference to an in-

dustry whose terms are defined by an active supervis-

ing agency. .., it is to be assumed in the absence of

evidence to the contrary, that they have that termi-

nology in mind.” Commercial Ins. Co. of Newark,

N.J. v. Gonzalez, 512 F.2d 1307, 1310 (1st Cir. 1975);

see also Superior Bus. Assistance Corp. v. United

States, 461 F.2d 1036, 1039 (10th Cir. 1972) (same)

(citing Keck v. United States, 172 U.S. 434 (1899)).

And, in fact, the record demonstrates that North

Carolina understood “appropriate steps” to mean

exactly what NRC regulations require. Immediately

following its designation as the next host State,

North Carolina identified the steps it would take,

including: (1) selection of a proposed site from which

data would be collected and analyzed to determine if

the site characteristics met the requirements of the

regulations; (2) acquisition of land; (3) selection of an

operator; (4) performance of any technical improve-

ments to the site required by the regulator; (5) ob-

taining licenses for the facility and achieving stan-

dards for the operation of the facility as required by

the regulator; (6) operation of the facility; (7) decom-

missioning of the site; and (8) perpetual care of the

site. See Subcommittee Report on the Roles of the

State and Private Sector in a Low-Level Radioactive

Waste Disposa! Facility (App. 516-18); see also North

Carolina Licensing Work Plan, May 31, 1996 (App.

229-33) (“The objective of the Plan is to guide activi-

ties necessary to... makeca... licensing decision.”).

tive waste facility. See 10 C.F.R. § 61.10; rd. §§ 61.11-.16. These

regulations give specific content to the phrase “approprmate

steps.”

However, in December 1997, North Carolina sent

the Commission a letter notifying it of the State’s

intention to “commence the orderly shutdown of the

project.” Dec. 19, 1997 Corgan letter to Hodes (App.

319). As noted, it is undisputed that over the next 19

months, while still a member of the Compact and the

designated host State, North Carolina failed to take

any steps, let alone “appropriate steps,” towards

obtaining or issuing a license to operate a low-level

radioactive waste disposal facility. See supra at 31.

It simply repudiated the Compact and did so while

insisting that it was the other party States who were

in the wrong by not providing North Carolina with

more money.

The Special Master noted that North Carolina en-

gaged in certain minimal activities from December

1997 to July 1999, and appears to have considered

these to be “appropriate steps.” For example, the

Special Master stated that North Carolina “con-

tinue[d] to fund the Authority for several years,

maintain[ed] the project’s records, and preserve[d]

the work done to date.” Second Report 18. But North

Carolina funded the Authority after December 1997

only in order to oversee “the orderly shutdown of the

project.” Dec. 19, 1997 Corgan letter to Hodes (App.

319). These activities thus were not steps towards

licensing and did not fulfill the State’s obligations

under Article 5(C).

The Second Report also incorrectly suggests that

North Carolina somehow discharged its duty to take

“appropriate steps” by seeking alternative funding

after December 1997. See Second Report 28, 36. The

record does not support this conclusion. ‘There is no

evidence that North Carolina made any funding pro-

posal, no evidence that the North Carolina Authority

sought anv loans, no evidence of any requests for

appropriations from North Carolina’s General As-

sembly, and no evidence that North Carolina sought

federal funds. To the contrary, the record reveals

only that North Carolina rejected a funding proposal]

made by the Commission. In light of this, the Second

Report was more accurate when it stated, in another

context, that after December 1997, all that North

Carolina did was “hope that alternative funding could

be secured.” Jd. at 27 (emphasis added). Hoping is

not an appropriate step.

Finally, the Special Master asserted that the par-

ties’ course of performance should be used in inter-

preting the term “appropriate steps.” Jd. at 23-28.

He noted that North Carolina had received funding to

assist its licensing of a facility; from this, he divined

that North Carolina was required to take steps to-

wards licensing a facility only so long as the funding

continued — 1.e., that it was appropriate for North

Carolina to cease concrete steps towards licensing

once the party States no longer provided a source of

funding. He stated that “the obligation [to take ‘ap-

propriate steps’ to secure a license] is properly con-

strued to be more akin to a promise to use reasonable

efforts than a promise to build a facility no matter

what the cost.” Jd. at 21. And, he found that, in light

of the cessation of funding, it was appropriate for

North Carolina simply “to fund the Authority and

preserve the project until it withdrew.” Jd. at 28.

This view suffers from numerous flaws and would

deprive the “appropriate steps” requirement of all

meaning.

First, although the parties’ course of performance

can assist in interpreting an ambiguous contract, it

cannot be used to contradict the unambiguous terms

of the agreement. 11 Williston & Lord, supra, § 31:4,

at 274-78 (“While the court may also look to course of

performance ... primary importance should be placed

upon the words of the contract....If the language

used by the parties is plain, complete, and unambigu-

ous, the intention of the parties must be gathered

from that language, and from that language

alone ....”) (emphasis added; footnotes omitted); see

also Cooper Distrib. Co. v. Amana Refrigeration, Inc.,

63 F.3d 262, 279 (3rd Cir. 1995) (Alito, J.) (“While

extrinsic evidence, such as the course of performance

evidence ...may be admissible to supplement or

explain the terms of the agreement, it cannot be used

to contradict unambiguous terms.”) (alterations and

quotation marks omitted).

The Compact is not ambiguous with respect to who

bears the responsibility for funding a low-level radio-

active waste facility. Significantly, it expressly states

that the Commission is not “responsible for any costs

associated with... the creation of any facility.” Art.

4(K); see Preliminary Report 20 (citing Art. 4(K))

(“[T]he Compact was drafted on the apparent as-

sumption that a State (such as North Carolina) des-

ignated as a host State would bear the costs of build-

ing its own disposal facility and would not receive

funding from the Commission.”); cf. N.C. Gen. Stat.

§ 104G-4 (repealed 2000) (App. 34) (the Authority is

responsible to “site, finance, [and] build” a facility to

reccive the region’s low-level radioactive waste for

disposal.). In light of the Compact’s clear allocation

of funding responsibility, it was error for the Special

Master to find that North Carolina’s obligation to

take appropriate steps towards licensing was condi-

tioned upon the continued provision of funding.

Second, the Special Master concluded that North

Carolina’s sovereign status supported his view that

the term “appropriate steps” should bs interpreted by

the parties’ course of performance. Second Report 23

(citing Art. 3). He cited no authority in support of

this proposition. Regardless of any sovereign status,

however, course of performance is not applicable to

unambiguous contract terms. Just as when the fed-

eral government waives its immunity and enters a

contract, North Carolina is subject to the ordinary

principles of contract law and interpretation; these

rules do not change because a State is a contracting

party. Cf. Franconia Assocs., 536 U.S. at 141 (“Once

the United States waives its immunity and does

business with its citizens, it does so much as a party

never cloaked with immunity.”). This is particularly

true where, as here, both contracting parties are

sovereigns and the contract at issue is a Compact.

All party States made the same promise to each

other — to fund the licensing of a low-level radioactive

waste facility when it came their turn to be the host

State. Finally, as explained supra at 35-36, even if

resort to the parties’ course of performance is permis-

sible, it cannot be used to contradict the Compact’s

explicit provisions making clear that funding is ex-

clusively the responsibility of the host State.

Third, the Special Master used the parties’ course

of performance to give the term “appropriate steps” a

meaning that makes no sense in context. See Dolan

v. United States Postal Serv., 546 U.S. 481, 486

(2006) (“[i]Jnterpretation of a word or phrase depends

upon reading the whole statutory text, considering

the purpose and context of the statute”). The Com-

pact’s essential purpose is to provide for the coopera-

tive establishment of low-level radioactive waste

disposal facilities. To accomplish this, each host

State was responsible for funding the licensure of a

facility. The “appropriate steps” necessary to achieve

this purpose are evident, and North Carolina cannot

reasonably be said to have fulfilled its obligation to

take such steps merely by “preserv[ing] the project

until it withdrew.” Second Report 28. North Caro-

lina had a duty to continue to fund the licensing proc-

ess and take steps, t.e.. move forward towards licens-

ing.

Ultimately, however, the parties’ course of per-

formance does not support the Special Master’s deci-

sion that North Carolina took appropriate steps un-

der the Compact. It was North Carolina — not the

Commission — who bore the responsibility of funding

the siting and licensing of the facility. It is undis-

puted that shortly after entering the Compact and

becoming the host State, North Carolina enacted into

law its clear understanding that it would fund the

facility. N.C. Gen Stat. § 104G-4 (repealed 2000)

(App. 34) (The Authority is “to site, finance, build,

lease or operate, oversee, monitor and close {the re-

gional] facility.”) (emphasis added). To that end, the

North Carolina Authority’s Legal and Finance Com-

mittees immediately identified funding mechanisms,

including state appropriations, revenue bonds, pri-

vate loans, and federal public assistance bonds. See

Dec. 7, 1987 and Jan. 11, 1988 Minutes of North

Carolina Authority's Legal and Finance Committee

Meeting (App. 519-20 & 523-24). And, North Caro-

lina began appropriating funds.'! See 1987 N.C.

'' The Compact parties’ understanding was that each host

State, in turn, would fund the siting, hcensing, and construction

of a facility upfront and later use the fees and surcharges levied

on users of the completed facility to repay the state for those

expenditures, and then fund other state initiatives. See Nov. 17,

1988 Report to the Joint Legislative Commission on Govern.

ment Operations by the NC Authority (App. 528) (“It is the

understanding of the [North Carolina] Authority that all money

expended for the planning, developing, licensing, regulating,

constructing, operating and closing this disposal facility well be

paid for by the operation of the facility and that al! appropriated

Sess. Laws ch. 1086 (appropriating funds for “Low

Level Radioactive Waste Management Site Develop-

ment”) (App. 60).

Moreover, each time it requested funds from the

Commission, North Carolina recognized that the

Commission had no legal obligation to make those

payments.!2 In fact, Governor Hunt told his constitu-

ents as much only six months before North Carolina

stopped performing. May 19, 1997, Hunt letter to

Rimmler (App. 275) (“The Compact law... does not

provide a funding mechanism for the host state.

Indeed, that law requires the state which is currently

developing a site for use by the Compact members to

bear the full burden of the cost.”). On these undis-

puted facts, the parties’ course of performance does

not support the conclusion that the Commission was

responsible for funding the facility or that North

Carolina’s obligation to take appropriate steps to

provide a facility were conditioned on Commission

funding. The record conclusively demonstrates just

the opposite — that these were North Carolina's obli-

gations.

The Special Master placed particular reliance on

the February 1988 Commission resolution establish-

ing the Host State Assistance Fund as a significant

indication that costs were relevant in determining

whether North Carolina took “appropriate steps.”

money from the General Assembly will be repaid from this reve-

nue.’) (emphasis added).

‘2 See MacMillan, Executive Director of North Carolina Low-

level Radioactive Waste Management Authority, Dep. Tr. at

40:13-:17 (App. 470) (Question (by Ms. Kochler): “Was it your

understanding that [the Commission] wlas) obligated to make

lfunds requested by the Authority] available ..” Answer (by

Mr. MacMillan): “Well, I knew that at any time they could say

no”)

Second Report 25. Passed two years after contract

formation and stating that the fund is “necessary and

appropriate” for the construction of the facility, the

resolution cannot bear this weight. In fact, the reso-

lution clearly states that the Commission is not obli-

gated to provide financial assistance. Resolution,

Feb. 9, 1988 (“[T]he Commission, although not obli-

gated to do so under the Compact,” provides this

funding.) (App. 63). Furthermore, North Carolina

specifically recognized at the time it requested this

funding that the resolution’s language did not alter

the meaning of the Compact. See N.C. Gen Stat.

§ 104G-4 (repealed 2000) (App. 34).'° Finally, over

subsequent years, the Commission reiterated, and

North Carolina agreed, that North Carolina — not the

Commission or the party States — had a duty to fund

the facility.

‘8 This resolution provided only an initial sum of $200,000 for

assistance to any state designated as the next host State for

planning, administrative, and other pre-operational costs, i.e., a

small fraction of the total cost of the facility that North Carolina

voluntarily undertook to finance, license, and operate. See Dec.

7, 1987 Minutes of North Carolina Low-Level Radioactive Waste

Management Authority's Legal and Finance Committee Meeting

(App. 519) (“[T)he Southeast Compact Commission has budgeted

$200,000 per year for utilization of the next host State to par-

tially off-set pre-operational costs.”) (emphasis added). It thus

cannot be viewed as altering the parties’ understanding of North

Carolina's fundamental obligation to finance the project under

the Compact. See Resolution, Feb. 9, 1988 (App. 63). To be sure,

the 1998 resolution stated that certain funding was both “ap.

propriate” and “necessary.” However, this language applied to

the small amount of “seed” money provided for by the actual

resolution. None of the parties ever understood that this was a

statement applying to all funding by the Commission over the

entire eleven-year period. In fact, North Carolina continued to

reiterate, long after this resolution, that it - and not the Com

mission — had the responsibility to fund the facility.

The Special Master read North Carolina's obliga-

tions out of the Compact, viewing the Compact as

aspirational, rather than treating it as a federal stat-

ute and contract. He opined that “each of the partici-

pating States hoped to receive the benefit of being

able to dispose of waste at a facility outside its bor-

ders, while avoiding the burdens of being the State

selected to host the waste disposal facility.” Second

Report 13. He claimed, further, that the Compact

was “designed to maximize the participating States’

ability to extricate themselves from the arrangement

if they had the misfortune of being chosen as the host

State” and that “[u]nder such a regime, it would be

surprising indeed if a facility were actually con-

structed without significant assistance from the

States not selected as hosts or from the Commission,

drawing on other sources of revenue.” Jd. at 14. This

ineffectual reading of the Compact and the commit-

ments it involved cannot be reconciled with the facts:

The Compact is a federal statute, and Congress in-

tended to address — not avoid — the problem of low-

level radioactive waste disposal when it authorized

and then enacted into law these regional waste dis-

posal compacts. Once chosen as a host State, North

Carolina was obligated by the Compact, at a mini-

mum, to take “appropriate steps to ensure that [a]

license to construct and operate a facility... [wal]s

filed with and issued by the appropriate authority.’

Art. 5(C). This it did not do.

C. North Carolina Breached Its Implied

Covenant Of Good Faith And Fair Deal-

ing.

Independently, North Carolina breached the Com-

pact when, after inducing the other party States to

invest more than eleven years and almost $80 million

in the development of a regiona! waste disposal facil-

ity, it ceased performing based on the Commission’s

denial of funding and then withdrew from the Com-

pact on the eve of the sanctions hearing. In these

circumstances, North Carolina’s withdrawal breached

its implied covenant of good faith and fair dealing.

“Every contract imposes upon each party a duty of

good faith and fair dealing in its performance and

enforcement.” Restatement (Second) of Contracts

§ 205 (emphasis added). The duty of good faith and

fair dealing “is based on fundamenta! notions of fair-

ness.” 2 E. Allan Farnsworth, Farnsworth on Con-

tracts, § 7.17, at 355-56 (3d ed. 2004) (citing U.C.C.

§ 1-304). It requires of each party “faithfulness to an

agreed common purpose and consistency with the

justified expectations of the other party.” Restatement

(Second) of Contracts § 205, emt. a. While “[a] com-

plete catalogue of types of bad faith is impossible,”

commonly recognized examples include “evasion of

the spirit of the bargain,” “lack of diligence,” and

“willful rendering of imperfect performance.” Id.

§ 205, emt. d. Failure to perform im good faith is a

breach. 23 Williston & Lord, supra, § 63:21, at 497-

98 (“the failure to perform a duty when performance

is due is a breach,...as, for example, is the case

where there is a breach of the duties of good faith and

fair dealing’).

To be sure, North Carolina could withdraw from

the Compact; it simply could not do so in bad faith.

North Carolina’s withdrawal from the Compact, in

this instance, was the epitome of bad faith and unfair

dealing. As noted above, North Carolina sought and

obtained almost $80 million to assist it in fulfilling its

Compact obligations and, ultimately, to produce a

waste disposal facility. While doing so, North Caro-

lina repeatedly reaffirmed its commitment to com-

plete a facility. See, eg., N.C. Governor's Press Re-

lease (Nov. 8, 1989) (App. 75), (“The task of siting and

operating a low-level radioactive waste disposal facil-

ity is a commitment the State of North Carolina has

made and one which | am personally committed to

keeping.”); Oct. 25, 1990, Gov. Martin letter to

Campbell (App. 92), (“North Carolina remains com-

mitted to fulfilling its obligations to the Compact to

serve as the next host state.”); Apr. 4, 1991, Gov.

Martin letter to Hodes (App. 102), (“North Carolina

expresses its continued highest level of commitment

to the timely establishment of the... facility”) (em-

phases added).

But, when the party States ceased providing fund-

ing, North Carolina refused to perform, claiming that

this cessation eliminated its duty to do so. North

Carolina made this claim in the face of unambiguous

Compact language stating that the Commission is not

responsible for funding the host State’s facility. Fi-

nally, with a sanctions complaint pending against it,

North Carolina withdrew from the Compact seeking

to escape accountability. This opportunistic conduct

is Inconsistent with the Compact and with the State’s

duty of good faith and fair dealing; it also undermines

the stability of Compacts and the predictability of

contractual relations. See, e.g., Mkt. Streei Assocs.

Ltd. P’ship v. Frey, 941 F.2d 588, 595 (7th Cir. 199]

(“The office of the doctrine of good faith is to forbid

the kinds of opportunistic behavior that a mutually

dependent, cooperative relationship might enable in

the absence of a rule.”).

The Special Master determined that the duty of

good faith and fair dealing does not apply here. First,

he cited considerations of federalism, stating that

‘judicial imposition of compact terms beyond those

for which the States have expressly bargained poses

risks similar to those inherent in interpreting am-

biguous federal statutes to impose obligations on

States in areas... in which the States have exercised

‘traditional and primary power.” Second Report 30

(quoting Solid Waste Agency of N. Cook County v.

U.S. Army Corps of Eng’rs, 531 U.S. 159, 174 (2001)).

But, this solicitude for North Carolina ignores that

its contractual partners are also sovereigns. When

States contract with fellow States, federal common-

law contract principles apply. Oklahoma v. New

Mexico, 501 U.S. 221, 245 (1991) (Rehnquist, C.J.,

concurring 1n part and dissenting in part) (an inter-

state compact “remains a contract which is subject to

normal rules of enforcement and construction”); see

also Beebe v. Wash. Metro. Area Transit Auth., 129

F.3d 1283, 1288-90 (D.C. Cir. 1997) Gnterstate com-

pact is federal law whose interpretation is governed

by federal common law). The implied duty of good

faith is such a principle. In Tymshare, Inc. v. Covell

727 F.2d 1145, 1153 (D.C. Cir. 1984), then-Judge

Scalia explained that the modern expression of “good

faith” is a surrogate for the long-standing common-

law principle that there are “implied obligation|[s] or

limitation[s]” in a contract. See id. at 1152 ‘citing

Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214, 214

(N.Y. 1917)). When sovereigns contract, each is enti-

tled to the benefit of normal contract-law principles.

The Special Master also wrongly believed that if he

were to read a duty of good faith into the Compact,

that would limit North Carolina’s express right to

withdraw. Second Report 31. While the Compact

states that “any party state may withdraw from this

compact,” Art. 7(G), it does not authorize a State to

withdraw in bad faith or for any reason whatsoever,

no matter how arbitrary or unreasonable and no

matter whether the State’s withdrawal would defeat

substantial and justified reliance interests of the

other party States.!14 The Compact cannot reasonably

be read to authorize this type of bad faith with-

drawal.!5

The structure of the Compact and the statements of

the contracting parties provide the best evidence of

the parties’ understanding of their mutual commit-

ments. Both confirm that the parties understood and

intended each party State to undertake its respective

responsibilities under the Compact in good faith. The

Tymshare court concluded that the appropriate ques-

tion is “whether it was reasonably understood by the

'‘¢ Many courts have recognized that an express right to ter-

minate a contract must be exercised consistently with the duty

of good faith and fair dealing, particularly where, as here, the

contractual relations among the parties “involve a special ele-

ment of reliance.” See, e.g., Bohne v. Computer Assocs. Int'l,

Inc., 445 F. Supp. 2d 177, 181 (D. Mass. 2006) (quotation marks

omitted) (collecting cases), rev'd on other grounds, 541 F.3d 141

(Ist Cir. 2008); United Roasters, Inc. v. Colgate Palmolive Co.,

649 F 2d 985, 989 (4th Cir. 1981) (“[wjhen termination is op-

pressive, when it would frustrate expectations reasonably held,

though unsecured by express contractual agreements and when

it will impose substantial losses upon the other party, applica-

tion of the [good-faith] principle may well be called for”);

Randolph v. New England Mut. Life Ins. Co., 526 F.2d 1383,

1386 (6th Cir. 1975) (duty of good faith applies to “the exercise

of a facially unrestricted termination clause’).

'* The Special Master attempted to distinguish Entergy Ar-

kansas, Inc. v. Nebraska, 358 F.3d 528, 547-48 (8th Cir. 2004),

where the Eighth Circuit held that the duty of good faith applied

to an interstate compact, by noting that there was an express

provision in the Compact obligating the States to act in good

faith. Second Report 31, n.3. However, in analyzing the issue,

the Eighth Circuit looked to the Restatement (Second) of Con-

tracts and cited this Court's reference to the Restatement in

another interstate compact case, Texas v. New Mexico, 482 U.S.

124, 129 (1987). The Restatement similarly compels application

of the good faith doctrine here. See Restatement (Second) of

Contracts § 205

parties to th[e] contract that there were at least cer-

tain purposes for which [an] expressly conferred

power... could not be employed.” 727 F.2d at 1153.

North Carolina has admitted that it understood that

the Compact required it to act in good faith. “The

obligation conferred on North Carolina under the

terms of the Compact was to work in good faith to

construct a facility, unless and until North Carolina

exercised its right to withdraw from the Compact and

forgo the benefits of membership.” Def. Reply to Mot.

to Dismiss at 19 (emphasis added).'® North Caro-

lina’s cessation of performance based on the Commis-

sion’s refusal to provide further funds followed by

withdrawal when sanctions were threatened consti-

tutes bad faith as a matter of law.

Regardless of the Special Master’s contrary view,

the “duty of good faith” applies to “the exercise of a

facially unrestricted termination clause,” Randolph

v. New England Mut. Life Ins. Co., 526 F.2d 1383,

1386 (6th Cir. 1975), unless the express language or

the structure of the contract requires another read-

ing. See Tymshare, 727 F.2d at 1154. Nothing in the

'* A contract can be written so “as to leave decisions abso-

lutely to the uncontrolled discretion of one of the parties.”

Tymshare, 727 F.2d at 1153. But “the trick 1s to tell when a

contract has been so drawn — and surely the mere recitation of

an express power is not always the test.” Jd. (emphasis in origi-

nal). “[T]o say that every expressly conferred contractual power

is of this nature is virtually to read the doctrine of good

faith... out of existence.” /d. at 1153-54 (emphasis added) If

the express terms of the Compact were enough to allow the

states unlimited discretion to withdraw, there would be no

implied duty of good faith. Jd. at 1153 (“|Wle must reject at the

outset the proposition... that as to acts and conduct authorized

by the express provisions of the contract, no covenant of good

faith and fair dealing can be implied which forbids such acts and

conduct.”) (internal quotation marks and alteration omitted).

text or structure of the Compact suggests that the

party States have been relieved of their obligation to

act in good faith.

Indeed, reading the Compact to allow bad faith

withdrawals would render the contract illusory. On

this reading, party States can reap the benefits of

Compact membership and yet withdraw at any time

after being designated the host State and do so in bad

faith. This Court should not read the Compact cyni-

cally as the Special Master did — to render it self-

defeating. E.g., Restatement (Second) of Contracts

§ 76, cmt. d (“Words of promise do not constitute a

promise if they make performance entirely optional

with the purported promisor. Such words, often re-

ferred to as forming an illusory promise, do not con-

stitute consideration for a return promise.”) (citation

omitted). Instead, the Court shou!d enforce the con-

tracting parties’ duty of good faith and fair dealing

and find that bad faith withdrawals constitute a

Compact breach. See, e.g., 1 Farnsworth, supra,

§ 2.13, at 137 (courts “salvage! ] [an otherwise illu-

sory contract] by requiring that one of the parties

perform in good faith”).'7

‘7 Even if the Compact were illusory, the Plaintiff States

would be entitled to restitution of the benefit they conferred on

North Carolina in the mistaken belief that the parties had

entered imto u legally binding contract. See Restatement (Third)

of Restitution & Unjust Enrichment § 5(2) (T.D. No. 1, 2001)

(“[t}he mistake that will serve as the basis for rescission and

restitution... 1s a misapprehension of fact or law on the part of

the transferor, where (a) but for the mistake the transfer would

not have taken place; and (b) the transferor does not bear the

risk of the mistake”); id. § 31, cmt. a (T.D. No. 3, 2004) (“{I)f a

purported agreement proves after performance to be unenforce-

able because of a defect in contract formation - with the result

that the claimant has performed in the mistaken behef that a

contract exists when in fact it docs not — the resulting restitu-

D. North Carolina Repudiated The Con-

tract.

North Carolina also repudiated the contract. A re-

pudiation is “a statement by the obligor to the obligee

indicating that the obligor will commit a breach that

would of itself give the obligee a claim for damages

for total breach.” Restatement (Second) of Contracts

§ 250(a), see also Mobil Oil Exploration & Producing

Se., Inc. v. United States, 530 U.S. 604, 608 (2000)

(same); 9 Arthur Linton Corbin, Corbin on Contracts,

§ 959, at 759 (Interim ed. 2002) (repudiation occurs

when “the promisor makes a definite statement to the

promisee that he either will not or can not perform

his contract”); see also id., § 972, at 798.

North Carolina repudiated the Compact when it

flatly informed the Commission and the member

States that it would “commence the orderly shutdown

of the project” and thereafter ceased performing.

Dec. 19, 1997, Corgan letter to Hodes (App. 319). The

Special Master failed to mention or analyze North

Carolina’s repudiating statements.'*

By its terms, the Compact requires North Carolina

to “take appropriate steps to ensure that an applica-

tion claim is generally regarded as one for benefits conferred by

mustake.”).

'8 The Special Master appeared to misunderstand Plaintiffs’

repudiation argument, describing it as follows: because “North

Carolina took the position that it could not complete the licens

ing process on its own and decreased its expenditures from

approximately $2 million a year to approximately $440,000 a

year... North Carolina repudiated its obhgations under the

Compact.” Second Report 27. That is not Plaintiffs’ argument

Instead, Plaintiffs argue that North Carolina repudiated the

contract on December 19, 1997, when it informed Pla.ntiffs that

it would commence the orderly shutdown of the project and take

no steps to license a faciltty as required by the Compact

tion for a license to construct and operate a facility of

the designated type is filed with and issued by the

appropriate authority.” Art. 5(C). However, in a

letter dated December 19, 1997, addressed to Chair-

man Hodes of the Commission and copied to the

“Southeast Compact Member State Governors,”

Chairman Corgan of the North Carolina Authority

stated that the cessation of funding from the Com-

mission had “made further performance by the Au-

thority impossible” and left the Authority with “no

alternative but to commence the orderly shutdown of

the project.” Dec. 19, 1997 Letter (App. 317, 319).

On the same day, the Authority passed resolutions

directing the Authority’s contractors and staff “to

begin an orderly cessation of facility development

activities.” Dec. 19, 1997 Minutes of North Carolina

Authority Meeting (App. 322).

These statements constitute “a refusal to render

any further performance whatever under the con-

tract,” 9 Corbin supra, § 972, at 798, and, therefore,

constitute a classic repudiation. The repudiation is

underlined by North Carolina’s admission that it took

no steps to license or site a facility after December 19,

1997. See Second Report 10; see also Undisputed

Facts 4 55; Def. Statement of Material Facts Not in

Dispute 44] 67-70.!9

‘§ The Special Master also belheved that North Carolina did

not repudiate the contract because it did not “act in a way that

rendered it unable to perform under the Compact.” Second

Report 27. North Carolina's ability to perform does not preclude

a finding of repudiation. Repudiation occurs one of two ways:

when a party “cannot” perform or “will not” perform “at least

some of its obligations under the contract.” 2 Farnsworth, supra

§ 8.21, at 558. North Carolina, while able to perform, refused to

do so. That is a repudiation.

The Special Master seemed to believe that North

Carolina did not repudiate its obligations because it

stated it was willing to perform if the Commission

provided further funding. Second Report 27 (“North

Carolina did not state that it intended to breach the

Compact. To the contrary, North Carolina took the

position that it was not obligated under the Compact

to bear all of the costs associated with licensing a

facility.”); see also Def. North Carolina’s Opp’n to Pls.’

Mot. for Summ. J. at 15 (“Had the Commission pro-

vided further funding to North Carolina, the Author-

ity would have resumed the licensing process.”).

This conditional willingness to perform only if other

parties to the Compact forgo their rights under the

agreement does not alter North Carolina’s repudia-

tion. “[L]anguage that under a fair reading ‘amounts

to a statement of intention not to perform except on

conditions which go beyond the contract’ constitutes a

repudiation.” Restatement (Second) of Contracts

§ 250, cmt. 6 (quoting U.C.C. § 2-610, off. cmt. 2);

accord 2 Farnsworth, supra, § 8.21, at 562.

Under the express terms of the Compact, the Com-

mission “is not responsible for any costs associated

with ... the creation of any facility.” Art. 4(K). The

obligation to fund the facility was North Carolina’s,

which it recognized. N.C. Gen. Stat. § 104G-4 (re.

pealed 2000) (App. 34) (the Authority is responsible

to “site, finance, Jand] build” a facility to receive the

region's low-level radioactive waste for disposal.).

North arolina’s refusal to fulfill its obligations as

host State absent funding clearly “amountfed] to a

statement of intention not to perform except on condi-

tions which go beyond the contract” and therefore

“constitut([ed] a repudiation.” Restatement (Second) of

Contracts § 250 cmt. b (internal quotation omitted).

Finally, North Carolina cannot avoid repudiation

by pointing to its efforts to “fund the authority for

several years, maintain the project’s records, and

preserve the work done to date,” Second Report 18, in

the “hope” that alternative funding could be secured.

This conduct is simply another aspect of North Caro-

lina’s conditional refusal to perform, seeking to ex-

tract from its contract partners funds that they were

not contractually required to provide.

North Carolina repudiated its Compact obligations

when it made a definite statement that it would not

take steps to site and license a facility, and made

good that threat.

lil. THE PLAINTIFFS ARE ENTITLED TO

RESTITUTION.

North Carolina’s breach of the Compact entitles the

party States to standard contractual remedies, in-

cluding restitution. 9 Corbin, supra, § 946, at 717

(“For every breach of contract, irrespective of its size

or kind, the law will give an immediate remedy.”).”°

When a breach of contract occurs, the non-breaching

party is entitled to restitution of any benefit he con-

ferred on the breaching party, and that is the relief

Plaintiffs seek. E.g., Restatement (Second) of Con-

tracts § 344, cmt. d (Restitution is the appropriate

contract remedy where, “instead of seeking to enforce

an agreement, [the injured party} claims relief on the

*° In the alternative, the States are entitled to damages. Re-

statement (Second) of Contracts § 236. cmt. a (“Every breach

gives risc to a claim for damages, and may give rise to other

remedies.”). Jd. § 347, cmt. a (“Contract damages are ordinarily

based on the injured party’s expectation interest and are in-

tended to give him the benefit of his bargain by awarding him a

sum of money that will, to the extent possible, put him in as

good a position as he would have been in had the contract been

performed.”).

ground that the other party has been unjustly en-

riched as a result of some benefit conferred under the

agreement.”).

The principles governing restitution as a remedy

for breach of contract are set forth in § 373 of the

Restatement (Second) of Contracts. See Mobil Oil,

530 U.S. at 608 (relying on § 373 for the “relevant

principles”). Subject to an exception not applicable

here, § 373 provides:

[Ojn a breach by non-performance that gives rise

to a claim for damages for total breach or on a

repudiation, the injured party is entitled to resti-

tution for any benefit that he has conferred on

the other party by way of part performance or re-

hlance.

Under § 373, the party States are entitled to resti-

tution because (1) North Carolina committed a breach

by non-performance that gave rise to a claim for dam-

ages for total breach and a repudiation; (2) North

Carolina received a benefit; (3) the benefit was con-

ferred by the party States; and (4) the benefit was

conferred by way of part performance “or reliance.”

See supra at II.B.

Critically, the Commission, acting on behalf of the

party States, did not provide funds in performance of

the Compact — neither the States nor the Commission

had a duty under the Compact to provide North Caro-

lina with funding. But the funds were provided in

reliance on the Compact and on North Carolina’s

representations thereunder. Put another way, the

Commission, on behalf of the Party States, would not

have provided funds absent North Carolina’s oblga-

tion and commitment to the other States to develop

and operate a regional facility as required by the

Compact. Plaintiffs were fully justified in that reli-

ance because North Carolina repeatedly affirmed

that it would develop and operate a regional facility

and otherwise fulfill its obligations under the Com-

pact. See supra, at 8, 42-43. An injured party is

entitled to restitution of benefits conferred in justifi-

able reliance on an agreement. Restatement (Second)

of Contracts § 370, cmt. a (restitution is appropriate

‘if the party seeking restitution relies on the contract

in some [way other than by performance]”).

Accordingly, the Plaintiffs are entitled to restitu-

tion of $80 million, plus interest. See, e.g., 12 Corbin,

supra, § 1108, at 29 (“If the plaintiff has made money

payments to the defendant and there is later a failure

of consideration therefore, involving a repudiation by

the defendant or any other breach going to the es-

sence of the contract, the plaintiff can maintain an

action for restitution of the money so paid to the de-

fendant, with interest.”).

CONCLUSION

For the foregoing reasons, this Court should adopt

Plaintiffs’ exceptions and order the enforcement of

the sanctions order or, in the alternative, order North

Carolina to pay full restitution.

Respectfully submitted,

TROY KING CARTER G. PHILLIPS *

ATTORNEY GENERAL VIRGINIA A. SEITZ

OFFICE OF THE KRISTIN GRAHAM KOEHLER

ATTORNEY GENERAL ANGELA M. XENAKIS

Alabama State House HL ROGERS

11 South Union Street SIDLEY AUSTIN LLP

Third Floor 1501 K Street, N.W.

Montgomery, Al. 36130 Washington, D.C. 20005

(334) 242-7300 (202) 736-8000

BILL MCCOLLUM

ATTORNEY GENERAL

OFFICE OF THE

ATTORNEY GENERAL

STATE OF FLORIDA

PL-01, The Capitol

Tallahassee, FL 32399

(850) 414-3300

WILLLAM C. MIMS

ATTORNEY GENERAL

OFFICE OF THE

ATTORNEY GENERAL

900 East Main Street

Richmond, VA 23219

(804) 786-2071

ROBERT E. COOPER JR.

ATTORNEY GENERAL

OFFICE OF THE

ATTORNEY GENERAL

P.O. Box 20207

Nashville, TN 37202

(615) 741-3491

HENRY W. JONES JR.

JORDAN PRICE WALL GRAY

JONES & CARLTON

P.O. Box 10669

Raleigh, NC 27605

(919) 828-2501

Counsel for Plaintiffs

June 24, 2009

* Counsel of Record

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.