On June 6, 2022, the United States Court of Federal Claims issued a decision in City of Fresno, et al. v. United States and San Luis & Delta Mendota Water Authority, et al., and Central California Irrigation District, et al., denying Plaintiffs’ motion for summary judgment and granting Defendant and Defendant-Intervenor’s motion for summary judgment as to liability.

This case has potentially significant implications for the operation of the Central Valley Project (CVP) during critical water years.

Background

The case involves the United States Bureau of Reclamation’s (Reclamation) operation of the CVP, which is guided in part by Reclamation’s various contracts with water users across the Central Valley. This includes the Exchange Contract, comprised of a series of purchase and exchange contracts between Reclamation and water rights holders on the San Joaquin River, the Exchange Contractors. The initial Purchase Contract transferred all of the Exchange Contractors’ water rights on the San Joaquin River to Reclamation except for a specified amount of flows called Reserved Flows. The Exchange Contractors then transferred all of the Reserved Flows to Reclamation so long as an agreed upon substitute supply is delivered to the Exchange Contractors from other sources. Reclamation is obligated to deliver up to 840,000 acre-feet (af) of water from substitute sources in non-critical water years. In critical years, Reclamation is obliged to deliver up to 650,000 af.

Reclamation is also party to the Friant Contract, which entitles Friant Contractors, including Plaintiffs, to San Joaquin River water from the Friant Division of the CVP. The Friant Contract states that Reclamation “shall make all reasonable efforts to optimize delivery of the Contract Total subject to…” federal law and the United States’ obligations under existing contracts and subsequent renewals. It also provides that Reclamation will not deliver San Joaquin River water to the Exchange Contractors unless and until required by the Exchange Contract.

Specifically, this litigation arose from Reclamation’s actions during the 2014-2017 drought. In 2014, Reclamation informed the Exchange Contractors that 2014 was a critical year and that their allocation would likely comprise 336,000 af of water. The projection was later increased to 529,000 af. For the first time, rather than sourcing all substitute water from the Sacramento-San Joaquin Delta (Delta), Reclamation released “substitute water” directly from the San Joaquin River water from Friant Dam. A total of 540,000 af of water was delivered to the Exchange Contractors, of which 209,000 af was released from Friant Dam. The Friant Contractors, on the other hand, received a zero percent allocation in 2014, receiving only minimal health and safety flows and carryover deliveries from their 2013 allocation. The Friant Contractors were denied access to any previously stored water in Millerton Lake even though the water had been developed during times when substitute water was provided in full to the Exchange Contractors.

Legal Analysis

Plaintiffs asserted that the allocations made to the Exchange Contractors in 2014 exceeded the contractually required amounts. Plaintiffs alleged that the Friant Contract “entitled them to 40,000 acre-feet of Class 1 Water originating from the San Joaquin River and that Reclamation’s zero-allocation in 2014 constituted breach.” The United States and Exchange Contractors, Intervenor-Defendants in the litigation, countered that the Friant Contract recognizes the Exchange Contractors’ superior CVP water rights, and that the Exchange Contract required Reclamation to deliver said waters in 2014. Moreover, they argued that Reclamation’s actions were immune, or alternatively, were subject to a “highly deferential arbitrary, capricious, or unreasonable” standard of review. Finally, the United States and Exchange Contractors claimed that the actions were justified because at no time in 2014 was Reclamation unable to deliver water to the Exchange Contractors from sources other than the San Joaquin River.

In considering Plaintiffs’ cause of action for breach of contract, the court focused on the plain text of the Exchange and Friant Contracts. While the court recognized that the Friant Contract required Reclamation to “exhaust other sources of CVP water prior to tapping into the San Joaquin River” to satisfy its obligation to the Exchange Contractors, it concluded that this “exhaustion requirement” did not prioritize the rights of the Friant Contractors over those of the Exchange Contractors. Additionally, the court found that the Friant Contract’s provision requiring Reclamation to make water available for delivery to Friant Contractors was not absolute, but rather was qualified by the statement that Reclamation’s obligation was subordinate to existing contracts and renewals thereof. The court found that the Exchange Contracts did not effectuate a relinquishment of the Exchange Contractors’ superior water rights on the San Joaquin River, and that nothing in the Friant Contract entitled the Friant Contractors to the San Joaquin River water released from Friant Dam in 2014. The court further held that Reclamation had no choice under the Exchange Contract but to deliver water from the Friant Division.

As to immunity, the court held that the Friant Contract’s immunity clause protected Reclamation from liability from a breach of contract claim when, as here, Reclamation’s obligations under the Exchange Contract and resulting allocation actions in times of severe drought were not arbitrary, capricious, or unreasonable. Thus, the court granted the United States’ and Exchange Contractors’ cross-motions for summary judgment as to liability for breach of contract.

Future Implications

This case is of particular import given California’s current drought. On April 1, 2022, Reclamation announced that it would begin releasing San Joaquin River water from Friant Dam to help meet its contractual obligations to the Exchange Contractors. Reclamation stated that its decision was based upon the Exchange Contractors’ senior water rights, widespread drought conditions, and limited water supply availability from the Delta.

For more information, please contact Ellen Moskal at emoskal@somachlaw.com or Alexis Stevens at astevens@somachlaw.com.

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