United States Court of Appeals for the Federal Circuit 

 

2007-5142 

STOCKTON EAST WATER DISTRICT, and 

CENTRAL SAN JOAQUIN WATER CONSERVATION DISTRICT, 

 

 Plaintiffs-Appellants, 

and 

SAN JOAQUIN COUNTY, STOCKTON CITY, 

and CALIFORNIA WATER SERVICE COMPANY, 

 Plaintiffs, 

v. 

UNITED STATES, 

Defendant-Appellee. 

Jennifer L. Spaletta, Herum Crabtree Brown, of Stockton, California, argued for 

plaintiffs-appellants. With her on the brief were Jeanne M. Zolezzi and Natalie M. 

Weber. Of counsel on the brief were Roger J. Marzulla, Nancie E. Marzulla and 

Gregory T. Jaeger, Mazulla & Marzulla, of Washington, DC. 

Kathryn E. Kovacs, Attorney, Appellate Section, Environment & Natural 

Resources Division, United States Department of Justice, of Washington, DC, argued 

for defendant-appellee. With her on the brief were Ronald J. Tenpas, Assistant 

Attorney General, and Katherine J. Barton, Attorney. Of counsel was Kristine S. Tardiff, 

Attorney, of Concord, New Hampshire. 

John D. Echeverria, Georgetown Environmental Law & Policy Institute, of 

Washington, DC, for amicus curiae. Of counsel on the brief was Katherine S. Poole, 

Natural Resources Defense Council, of Washington, DC. 

Appealed from: United States Court of Federal Claims 

Judge Christine O.C. Miller 
United States Court of Appeals for the Federal Circuit 

2007-5142 

STOCKTON EAST WATER DISTRICT, and 

CENTRAL SAN JOAQUIN WATER CONSERVATION DISTRICT, 

 Plaintiffs-Appellants, 

and 

SAN JOAQUIN COUNTY, STOCKTON CITY, 

and CALIFORNIA WATER SERVICE COMPANY, 

 Plaintiffs, 

v. 

UNITED STATES, 

 Defendant-Appellee. 

Appeal from the United States Court of Federal Claims in 04-CV-541, 

Judge Christine O.C. Miller. 

__________________________ 

DECIDED: September 30, 2009 

__________________________ 

Before NEWMAN, PLAGER, and GAJARSA, Circuit Judges. 

Opinion for the court filed by Circuit Judge PLAGER. Circuit Judge GAJARSA dissents. 

PLAGER, Circuit Judge. 

In the history of the western United States, the fight for water rights is a central 

theme. California, because a goodly part of the state shares the desert-like conditions 

that lie at the root of the fight, since before its founding has been one of the locales for 
this battle. This case is another chapter in that state’s long-running history of water 

disputes.1

Plaintiffs Stockton East Water District (“Stockton East”) and Central San Joaquin 

Water Conservation District (“Central”) (collectively, “plaintiffs” or “the Districts”) are 

water agencies organized under the laws of California for the purpose of providing water 

to municipal, industrial, and agricultural users.2 They allege that the United States 

(sometimes “Federal Government” or just “Government”) in managing water resources 

in California that are under federal control has failed to provide the quantities of water 

that it agreed to make available. The agencies claim to have binding contracts for the 

water, and that the Federal Government has breached these contracts. 

The water at issue is from the New Melones Unit of the vast federal water 

resources project in California known as the Central Valley Project (“CVP” or “Project”). 

The Project and the water resource facilities contained in it are situated wholly within the 

state of California, but are owned and operated by the United States through its Bureau 

of Reclamation (“Reclamation”), a part of the Department of the Interior. 

When Reclamation would not meet the quantity commitments in their contracts 

because of other demands for the water to which Reclamation gave priority, plaintiffs 

sued the United States in federal district court. That was in 1993, and marked the 

beginning of this continuing saga that has yet to see its end. 

 1

 For another glimpse at the current battles, see Jim Carlton, Parched State 

Searches for Ways to Expand Water Supply, Wall St. J., July 9, 2009, at A4; Sabrina 

Shankman, California Gives Desalination Plants a Fresh Look, Wall St. J., July 9, 2009, 

at A4. 

2

 Other plaintiffs, not parties to the contracts in this case, sought third-party 

beneficiary status. They have not appealed the trial court’s ruling against them on that 

issue. 

2007-5142 2
In 2007, the suit, having been transferred earlier by the district court to the United 

States Court of Federal Claims, was decided by that court after an eight-day trial. 

Subsequently, in an exhaustive 85-page opinion, the Court of Federal Claims concluded 

that, though the obligations for water delivery were indeed breached, certain contract 

provisions gave the Government the defenses it claimed. Judgment was awarded to 

the Government. Plaintiffs timely appealed to this court. 

BACKGROUND 

The historical record and procedural history of this case occupy a substantial part 

of the trial court’s extensive opinion. See Stockton E. Water Dist. v. United States, 75 

Fed. Cl. 321, 330-47 (2007). For more of the details, we refer the reader there. We 

recite in only summary fashion the facts necessary to place our decision in context. 

A. The Central Valley Project, New Melones, and the 1983 Contracts 

The Central Valley Project is the largest federal water management project in the 

United States. It was built to serve the water needs in California’s Central Valley Basin. 

Originally conceived by the State of California, the CVP was taken over by the Federal 

Government in 1935 and initially funded by Congress as part of the nation’s effort to use 

public works projects to return the economy to health during the Depression.3

 

Congress reauthorized the CVP in 1937, assigning to the Bureau of Reclamation the 

tasks of constructing and operating the CVP.4

 The CVP today consists of twenty dams 

and reservoirs, eleven power plants, over 500 miles of major canals, and numerous 

 3

 Rivers and Harbors Act of 1935, Pub. L. No. 74-409, 49 Stat. 1028; 

Emergency Relief Appropriation Act of 1935, Pub. L. No. 74-11, 49 Stat. 115. 

4

 Rivers and Harbors Act of 1937, Pub. L. No. 75-392, § 2, 50 Stat. 844, 

850. 

2007-5142 3
other facilities.5

 Reclamation continues to operate the CVP under the various federal 

reclamation laws that have been amended and supplemented many times over the 

years. 

The New Melones Unit of the CVP was completed in 1979 and consists of a 

large concrete dam on the Stanislaus River and a reservoir with a storage capacity of 

2.4 million acre-feet of water.6 New Melones was the last unit of the CVP to be 

constructed, after final authorization by Congress in 1962.7

 As Reclamation’s history of 

the project explains,8

 the construction of the New Melones dam and power plant was 

one of the more controversial chapters in the history of the CVP. The controversy 

focused on the loss of a popular stretch of recreational white water, inundation of 

archeological sites, and flooding of the West’s deepest limestone canyon. Controversy 

over the project lasted over a decade before the decision to proceed and provide 

irrigation water, flood control, and power generation occurred. The battle over 

construction of New Melones portended the end of the era of large dam construction. 

The 1962 Act authorizing New Melones required among other things that 

Reclamation determine the quantity of water required to satisfy all existing and 

 5

 About the Central Valley Project, http://www.usbr.gov/mp/cvp/about.html 

(last visited Sept. 29, 2009). 

6

 An acre-foot is the volume of water necessary to cover one acre of land 

with water to a depth of one foot and is equal to approximately 325,580 U.S. gallons. 

When gallons are too cumbersome a measure, the acre-foot is the standard unit of 

water used in this country in reference to large-scale water resources. 

7

 Flood Control Act of 1962, Pub. L. No. 87-874, 76 Stat. 1173, 1191. 

Congress had earlier authorized a New Melones project to alleviate flooding problems. 

Flood Control Act of 1944, Pub. L. No. 78-534, 58 Stat. 887, 901. The 1962 Act 

authorized the expansion of New Melones and its operation as part of the CVP. 

8

 http://www.usbr.gov/projects/ (select “New Melones Unit Project”; then 

follow “Project History” hyperlink) (last visited Sept. 29, 2009). 

2007-5142 4
anticipated future needs within the Stanislaus River Basin.9

 Also, as with every federal 

reclamation project, Reclamation was obligated to comply with state law in appropriating 

water for New Melones.10 This required Reclamation to apply for permits from the 

California State Water Resources Control Board (“SWRCB”), which has the power to 

make decisions for the state regarding water appropriation. 

In 1973, the SWRCB initially approved Reclamation’s application for a permit to 

appropriate water from New Melones, subject to twenty-five conditions and limitations.11 

Among other things, the SWRCB mandated annual releases from New Melones of 

98,000 acre-feet for fishery and wildlife purposes. The SWRCB also established water 

quality standards and estimated that annual releases of up to 70,000 acre-feet would be 

necessary to meet those standards. Taking into account these state-imposed 

requirements, Reclamation prepared a plan for operation of New Melones. As detailed 

in a 1980 report, Reclamation estimated that 180,000 acre-feet of water would be 

available annually for agricultural and municipal and industrial uses after other 

anticipated needs, including state-mandated releases for fishery and wildlife purposes 

and water quality, were satisfied.12

Another condition attached to the SWRCB’s approval of Reclamation’s 

application prohibited full impoundment of water in the reservoir until Reclamation had 

firm commitments for the beneficial use of the water. In part to demonstrate such 

 9

 76 Stat. at 1191. 

10 See Reclamation Act of 1902, Pub. L. No. 57-161, § 8, 32 Stat. 388, 390 

(codified at 43 U.S.C. § 383); see also California v. United States, 438 U.S. 645, 652 

(1978). 

11 California State Water Resources Control Board, Decision 1422 (Apr. 14, 

1973). 

12 J.A. at 2977 (Stanislaus River Basin Alternatives and Water Allocation 

Special Report (1980)). 

2007-5142 5
commitments, Reclamation began contract negotiations in the early 1980s with 

Stockton East and Central to provide the Districts with water from New Melones. These 

negotiations culminated in the signing by Reclamation of nearly identical contracts with 

Stockton East and Central (“the 1983 contracts”). These are the contracts at issue in 

this case. 

Article 3 of each contract specifies the maximum amount of water to be made 

available annually from the New Melones reservoir—75,000 acre-feet for Stockton East 

and 80,000 acre-feet for Central. Thus, Reclamation committed to provide the Districts 

with up to 155,000 acre-feet out of the 180,000 acre-feet per year that the 1980 report 

estimated would be available for consumptive uses. Article 3 also establishes for each 

year of the contract a minimum amount of water that Reclamation is obligated to make 

available, and for which the Districts must pay, beginning with the first full year after 

notification by Reclamation that water is available to the Districts. 

As required by the 1983 contracts, the Districts constructed and installed at their 

own expense multi-million dollar water delivery systems to carry water from the New 

Melones reservoir to their facilities. In May 1988, Reclamation announced that water 

was available and that the initial delivery date for purposes of the contracts was January 

1, 1989. This triggered the start of the annual minimum purchase and supply schedule 

of Article 3; however, from 1989 through 1992, the first four years after the initial 

delivery announcement, the Districts did not request any water from New Melones, and 

no water was delivered to them. 

2007-5142 6
B. The Central Valley Project Improvement Act 

In 1992, before the Districts ever received water from New Melones under the 

1983 contracts, Congress enacted the Central Valley Project Improvement Act 

(“CVPIA”).13 The purposes of the Act include the following: 

(a) to protect, restore, and enhance fish, wildlife, and associated 

habitats in the Central Valley and Trinity River basins of California; 

(b) to address impacts of the Central Valley Project on fish, wildlife and 

associated habitats; 

. . . . 

(f) to achieve a reasonable balance among competing demands for 

use of Central Valley Project water, including the requirements of 

fish and wildlife, agricultural, municipal and industrial and power 

contractors.14

The CVPIA expressly required the release of substantial quantities of water for 

fish, wildlife, and habitat restoration needs, directing Reclamation to dedicate annually 

800,000 acre-feet of the total CVP yield to those purposes.15 This legislation 

significantly affected Reclamation’s operation of the CVP. Though no provision of the 

CVPIA was directed specifically at the operation of the New Melones Unit, as will be 

discussed below Reclamation’s decisions regarding implementation of the CVPIA 

impacted the amount of water made available from New Melones for consumptive uses. 

C. Contract Performance — 1993-2004 

The first year the Districts requested water under the contracts was 1993, the 

fifth year after the initial delivery date announced by Reclamation, and the year 

immediately following enactment of the CVPIA. The following chart from the trial court’s 

 13 Pub. L. No. 102-575, §§ 3401-12, 106 Stat. 4600, 4706-31 (1992). 

14 CVPIA § 3402, 106 Stat. at 4706. 

15 CVPIA § 3406(b)(2), 106 Stat. at 4715-16. 

2007-5142 7
opinion, referred to by the trial court as the “Build-Up Schedule,”16 shows the annual 

minimum quantities of water in acre-feet that Reclamation was obligated under the 

contracts to make available to Stockton East and Central from 1993 through 2004, the 

last year at issue in this case: 

Annual Minimum Obligations 

Year Stockton East Central 

1993 500 0 

1994 23,350 28,000 

1995 23,450 28,000 

1996 23,550 28,000 

1997 46,400 56,000 

1998 46,500 56,000 

1999 66,700 56,000 

2000 67,400 56,000 

2001 68,100 56,000 

2002 68,800 56,000 

2003 69,500 56,000 

2004 70,200 56,000 

Under Article 4 of the contracts, the Districts were required to submit annual 

schedules indicating their monthly water requirements. Initially the Districts submitted 

such schedules, but it soon became apparent that Reclamation did not intend to provide 

the requested water, so according to the Districts they eventually stopped submitting 

schedules, or else requested less water than they actually desired. The trial court found 

 16 Stockton, 75 Fed. Cl. at 365. 

2007-5142 8
that failure by the Districts to submit schedules did not excuse any breach of contract by 

Reclamation;17 that finding is not disputed. 

Following is a synopsis of the Districts’ requests for water and the amount of 

water delivered by Reclamation under the 1983 contracts during the years 1993-2004. 

As will be seen, for most of the years at issue the water received by the Districts fell far 

short of the amounts requested and the minimum amounts required by Article 3 of the 

contracts. 

1993

Although the Districts requested a total of 20,000 acre-feet for 1993, Reclamation 

delivered no water under the contracts that year. 

1994

For 1994, Stockton East requested 75,000 acre-feet of water and Central 

requested 25,000 acre-feet. In February of that year, Reclamation announced an initial 

forecast of available CVP water based on “conditions caused by California’s fourth 

driest year in 85 years . . . result[ing] in Reclamation forecasting a critically dry year for 

1994.”18 The initial forecast provided a “zero water supply” for the Districts from New 

Melones, stating that “every effort is needed to avoid allowing the level of New Melones 

reservoir to drop below the minimum storage level (300,000 acre-feet) needed to 

generate power. . . . The available water will be allocated to fish and wildlife, and to 

meet water quality requirements.”19 In May 1994, Reclamation responded to the 

Districts’ water requests with a letter stating that no water could be delivered because 

 17 Id. at 363. 

18 J.A. at 3962 (Def.’s Ex. 276). 

19 Id. at 3963. 

2007-5142 9
rain and snowfall conditions had not been sufficient to support CVP contract deliveries. 

In the letter, Reclamation explicitly invoked the shortage provision of Article 9 of the 

1983 contracts (which will be discussed in more detail later): 

The shortage provision in your contract provides for the apportionment of 

CVP water among users from the same source when there is a shortage 

in the quantity of water available to CVP contractors. In accordance with 

that authority, the United States hereby informs you that there will be no 

available water supply from New Melones Reservoir for meeting your 

contractual commitments for the 1994 water year.20 

Neither Stockton East nor Central received any water from New Melones in 1994.

1995

For 1995, Stockton East requested 65,000 acre-feet of water and Central 

requested 50,000 acre-feet. In April 1995, Reclamation announced that a total of 

37,000 acre-feet would be made available to the Districts. Water delivery was delayed, 

however, when Reclamation informed the Districts that their water conservation plans, 

which were required by the contract and had been submitted two years earlier, did not 

meet Reclamation’s criteria. After the Districts’ revised water conservation plans were 

approved in August 1995, Central requested delivery of 5,000 acre-feet and Stockton 

East requested delivery of 6,750 acre-feet for the remainder of 1995. Ultimately 

Reclamation delivered in 1995 only 4,003 acre-feet to Stockton East and 4,564 acrefeet to Central. 

1996

For 1996, Stockton East requested 32,400 acre-feet and Central requested 

40,000 acre-feet. Stockton East later reduced its requested amount significantly. 

 20 J.A. at 3384 (Pls.’ Ex. 99). 

2007-5142 10
Reclamation delivered 15,197 acre-feet to Stockton East and 17,508 acre-feet to 

Central. 

1997-98

Reclamation, the United States Fish and Wildlife Service (“FWS”), the Districts, 

and other interested parties undertook negotiation of an Interim Plan of Operations 

(“IPO”). Completed and agreed to by the parties in 1997, the IPO provided a 

computational mechanism for allocating water to the Districts based on annual storage 

and inflow forecasts at the New Melones Reservoir. The amount to be allocated 

annually to the Districts combined ranged from 0 to 90,000 acre-feet. The trial court 

found that the Districts agreed to the terms of the IPO as a short-term modification to 

the 1983 contracts for 1997 and 1998.21 Under the IPO, the Districts were allocated a 

combined total of 50,000 acre-feet for each of those years; the trial court found that 

Reclamation’s water deliveries in those years complied with the terms of the IPO. 

1999-2004

Although the IPO was designed for use in 1997 and 1998, Reclamation 

continued to use the formulas in the IPO to allocate water to the Districts for each year 

from 1999 to 2004. The following table, adapted from the trial court’s opinion, 

summarizes (in acre-feet) the water requested by the Districts, the allocations made by 

Reclamation using the IPO, and the water actually delivered to each District between 

1999 and 2004: 

 21 Stockton, 75 Fed. Cl. at 356. 

2007-5142 11
Year Requested by 

Stockton East 

Requested by 

Central 

Allocated 

(Total) 

Delivered to 

Stockton East 

Delivered to 

Central 

1999 23,000 None 60,000 31,112 33,786 

2000 24,000 None 90,000 7,377 27,759 

2001 24,000 None 34,000 7,030 25,747 

2002 3,500 12,000 15,500 3,493 10,508 

2003 

10,000 

(combined with 

Central) 

10,000 

(combined with 

Stockton East) 

10,000 2,210 9,846 

2004 None 25,000 

15,000 

(Central 

only) 

1,486 13,605 

D. Procedural History 

As noted, this case began in 1993 with a complaint filed in the United States 

District Court for the Eastern District of California. Plaintiffs’ 1993 complaint alleged, 

inter alia, that implementation of the CVPIA caused the impairment of their vested water 

rights under the contracts in violation of the Fifth Amendment takings clause. 

Some ten years later, the district court transferred the takings cause of action to 

the Court of Federal Claims. Soon thereafter, plaintiffs, now in the Court of Federal 

Claims, amended their complaint to include a breach of contract claim for failure to 

provide water from 1993 to 2004 in accordance with the 1983 contracts. In 2005, the 

parties filed cross-motions for summary judgment on liability for the breach of contract 

claim. The trial court denied both motions and set the contract issues for trial. Stockton 

E. Water Dist. v. United States, 70 Fed. Cl. 515 (2006). 

Following an eight-day trial in 2006, the trial court issued its extensive opinion, in 

which it detailed the facts and set out various findings and conclusions. The court found 

2007-5142 12
that in each year from 1993 to 2004, Reclamation breached the 1983 contracts by not 

making available the amounts of water in the annual minimum purchase and supply 

schedule of Article 3. The court concluded, however, that Reclamation’s failure to 

deliver the required water was excused because Reclamation validly invoked the 

shortage provision of Article 9 and its determinations were not arbitrary, capricious, or 

unreasonable in violation of Article 12(d) (both sections to be discussed below). 

Stockton, 75 Fed. Cl. at 363-66. The court rejected the Government’s alternative 

defense that liability would be precluded by the sovereign acts doctrine. Id. at 372-73. 

Finally, although the takings claim was stayed pending resolution of the contract claim 

and was not at issue at trial, id. at 324 n.2, the trial court nevertheless dismissed the 

takings claim, concluding that the appropriate remedy for plaintiffs’ claims arises from 

the contracts themselves rather than the constitutional protection of property rights. Id.

at 373-74. 

Subsequently, the trial court granted in part and denied in part the Districts’ 

motion to alter or amend the judgment. The court corrected several factual errors in its 

earlier opinion, but refused to delete the portion of the opinion that dismissed the 

takings claim. Stockton E. Water Dist. v. United States, 76 Fed. Cl. 470 (2007). The 

trial court also denied the Districts’ motion for reconsideration. Stockton E. Water Dist. 

v. United States, 76 Fed. Cl. 497 (2007). 

The Districts filed a timely appeal in which they challenge the trial court’s nonliability judgment for 1994, 1995, and 1999-2004. They also appeal the trial court’s 

dismissal of their takings claim. We have jurisdiction under 28 U.S.C. § 1295(a)(3). 

2007-5142 13
DISCUSSION 

The history of this litigation is long, the facts are complex, as the above 

condensation and the trial court’s more extensive opinion testify, and the determinative 

legal issues, at least if one accepts the parties’ views, are several, and are strongly 

disputed. Even so, the basic case is fairly straightforward and the legal issues are not 

that difficult to follow. We will begin with a capsule restatement of the causes of the 

dispute, and how the issues became framed. This will simplify the problem of explaining 

exactly what has to be decided, and how we have decided it. 

A. Overview: The CVP and Changing Priorities 

When the CVP was begun in the 1930s, the stated purposes of the Project were 

“improving navigation, regulating the flow of the San Joaquin River and the Sacramento 

River, controlling floods, providing for storage and for the delivery of the stored waters 

thereof, for the reclamation of arid and semiarid lands and lands of Indian reservations, 

and other beneficial uses, and for the generation and sale of electric energy . . . .”22 

The dams and reservoirs were to be used “first, for river regulation, improvement of 

navigation, and flood control; second, for irrigation and domestic uses; and third, for 

power.”23 

As earlier noted, under the terms of the Congressional enactments establishing 

the CVP, the Federal Government in building and administering the Project was to be 

subject to the same state rules that applied to other water users in California. That 

 22 Rivers and Harbors Act of 1937, Pub. L. No. 75-392, § 2, 50 Stat. 844, 

850. 

23 Id.

2007-5142 14
meant complying with the State’s regulations applicable to water users, particularly 

users who wished to capture the water for consumptive uses. 

A brief refresher of key terms may be helpful. “Consumptive uses” refers to 

uses, such as irrigation, domestic uses, and industrial processes, that involve 

withdrawals from the water source, a lake or stream or in this case a man-made 

reservoir. These withdrawals may result in diminished quantity and quality of water 

available to downstream users for their consumptive uses, and may significantly impair 

such “non-consumptive uses” as boating, fishing, and wildlife habitat. 

In the arid western states, development depended on assured supplies of scarce 

fresh water for consumptive use. In contrast to the “riparian rights” regime in the 

Eastern United States,24 where water was abundant, the legal regime that developed 

for Western water rights is called “prior appropriation.”25 As a general proposition, 

under prior appropriation doctrine the right to a consumptive use of water belongs to the 

first person to make beneficial use of it. That person becomes the owner of a right to 

the quantity of water put to beneficial use, and that right takes priority over later 

claimants to the water.26

 

For purposes of this case, the important point is that when the CVP was 

established and for many years after, both federal and state water law and policy gave 

24 The “riparian rights” system for water allocation attributed water rights to 

land adjacent to surface water sources. The legal measure of the right was reasonable 

use. Ground water was freely accessed and belonged to the owner of the overlying 

land. See generally F.E. Maloney, S.J. Plager & F.N. Baldwin, Jr., Water Law and 

Administration ch.2 (1968). 

25 See generally 2 Waters and Water Rights chs.11-12 (Robert E. Beck ed., 

repl. vol. 2008). California, because it has riparian-type geography as well as arid 

regions, has some of both of these water rights regimes. 1 Waters and Water Rights

§ 8.02(a) (Robert E. Beck ed., repl. vol. 2007). 

26 2 Waters and Water Rights § 12.01 (Robert E. Beck ed., repl. vol. 2008). 

2007-5142 15
high priority to making the water resources available for consumptive uses. This meant 

providing water for irrigation, which created the fertile fields of California’s central valley 

agricultural industry, and later for withdrawals for domestic and industrial uses in 

support of the state’s burgeoning population and its cities. That was still the state of 

affairs when the New Melones project was undertaken in 1962, and this focus on 

consumptive uses was reflected in the 1983 contracts between the Districts and 

Reclamation governing consumptive use of the water in the New Melones reservoir. 

However, by the late 1980s and early 1990s, as environmental concerns became 

more pronounced and fish and wildlife interests moved more to the forefront, 

Government policy began to shift. For example, in 1973 when the SWRCB initially 

approved Reclamation’s permit for New Melones, it required 98,000 acre-feet of water 

to be released annually for fish and wildlife. However, under a 1987 agreement entered 

into by Reclamation and the California Department of Fish and Game, Reclamation was 

required to release for the same purpose up to 302,100 acre-feet of water annually. At 

the same time, while Reclamation anticipated when it signed the 1983 contracts that 

water quality standards mandated by the state would be attained with annual releases 

of 70,000 acre-feet from New Melones, significantly greater releases were necessary in 

later years to meet the standards. 

At the federal level, the shift in policy culminated in the Congressional enactment 

in 1992 of the CVPIA. The legislation added “mitigation, protection, and restoration of 

fish and wildlife” to the purposes of the CVP27 and for the first time under federal law 

specified that substantial quantities of water from the CVP were to be dedicated 

 27 CVPIA § 3406(a)(1), 106 Stat. at 4714. 

2007-5142 16
annually to non-consumptive uses—fish, wildlife, and habitat restoration.28 

Furthermore, and significantly, the Act expressly altered the priorities for use of the CVP 

dams and reservoirs to now include fish and wildlife, adding the italicized phrases: “first, 

for river regulation, improvement of navigation, and flood control; second, for irrigation 

and domestic uses and fish and wildlife mitigation, protection and restoration purposes; 

and third, for power and fish and wildlife enhancement.”29

As the trial court found, “the ever-increasing imposition of additional obligations 

for salinity and fisheries water releases led to a clash of management objectives and 

priorities, the unpredictability of available water supply, and an inherent conflict between 

demands for consumptive use by plaintiffs and environmental concerns.” Stockton, 75 

Fed. Cl. at 338. Ultimately the changing priorities “required Reclamation to alter the 

manner in which it made operational decisions regarding the allocation of water to the 

Contracting Parties pursuant to the 1983 Contracts.” Id. at 338-39. 

Reclamation’s own website sums it up by noting that the New Melones Dam is a 

reminder of the conflicts surrounding growth, the environment, and water in the West: 

“Even without the environmental controversy that surrounds the project, the operational 

and water yield problems will certainly cause continued difficulties well into the future. 

With the enormity of the problems facing New Melones, it seems unlikely that the 

project will ever realize its full potential as a multi use unit. Indeed, New Melones may 

become a case study of all that can go wrong with a project.”30 

 28 CVPIA § 3406(b)(2), 106 Stat. at 4715. 

29 CVPIA § 3406(a)(2), 106 Stat. at 4714 (emphasis added). 

30 http://www.usbr.gov/projects/ (select “New Melones Unit Project”; then 

follow “Project History” hyperlink) (last visited Sept. 29, 2009). 

2007-5142 17
B. Contract Interpretation and Performance 

The record establishes and the trial court found as a fact that Reclamation failed 

to provide the water that was promised under the 1983 contracts for the years 1994, 

1995, and 1999-2004, the years at issue in this appeal. Absent an affirmative defense, 

that failure by the Government would constitute a breach of the contracts and render the 

Government liable for damages for the breach. 

The Government essentially raises three affirmative defenses to this breach of 

contract suit. First, the contracts were entered into in light of federal reclamation law 

and state permits, and any changes in law, even changes such as the CVPIA made 

years after the contracts were entered into, are incorporated as a matter of fundamental 

law into the contracts. This will be referred to as the ‘inherency’ defense. Second, 

specific provisions of the contracts, namely Articles 9(a) and 12(d), provide the 

Government with a valid defense. This is the ‘contract provision’ defense. And third, in 

addition to these other defenses, the sovereign acts doctrine stands as a defense to the 

Districts’ contract claims; this we call the ‘sovereign acts’ defense. We address each of 

these defenses in turn. 

1. The Inherency Defense: Are the contracts by their inherent nature 

subject to changes in the law?

The Government’s argument is that, because these contracts involve the 

administration of a government program by a government agency, and the 

administration of that program is subject to later changes in federal and, in this case 

state, law and policy, the contracts are effectively adhesion contracts. That is, whatever 

changes may occur in the Government’s law and policies with regard to the contract, for 

example, the CVPIA and Reclamation’s administration of it, the Districts must adhere to 

2007-5142 18
them. The Government finds as the source of this doctrine the basic nature of contracts 

with a sovereign United States, and also cites as authority the basic principles of 

California water law, including the public trust doctrine, which the Government refers to 

as ‘background principles.’ The Districts dispute that the CVPIA is relevant to the 

proper administration of the contracts. They further dispute that the so-called 

‘background principles’ of California statutory and common law have any bearing on the 

question of obligations under these supply contracts with regard to the specified 

quantities of water within the control of the Government. 

We note here that this defense shares in some respects the conceptual 

underpinnings of the sovereign acts defense, a matter we take up below. Because the 

Government raised this first defense separate and apart from that of the sovereign acts 

defense, we address it separately. 

a. Federal Law 

We have no problem rejecting the Government’s argument insofar as it pertains 

to changes in federal law. First, there is the obvious question of whether making the 

contracts subject to whatever future federal law or policy may hold would make the 

contracts illusory. Torncello v. United States, 681 F.2d 756, 760 (Ct. Cl. 1982) (“[A] 

party may not reserve to itself a method of unlimited exculpation without rendering its 

promises illusory and the contract void . . . .”); 1 Richard A. Lord, Williston on Contracts

§ 4.27 (4th ed. 1999) (“[W]here the promisor retains an unlimited right to decide later the 

nature or extent of his or her performance[, the] unlimited choice in effect destroys the 

promise and makes it illusory.”). Relatedly, there is the question whether such a 

construction would also make the Government subject to a claim of unfair dealing and 

2007-5142 19
fraud in inducing a party to enter into such a contract and expend substantial sums in 

compliance with it. 

But more to the point in this case, there is nothing in these contracts to suggest 

that the Government’s reading of the contracts and the claim of inherent law 

incorporated into them is what either party to the contracts understood was intended. 

Indeed, the contract provisions suggest quite the contrary. Specific provisions in the 

contracts afford the Government complete defenses to a failure to perform, but the 

defenses are circumscribed by the terms in which they are cast, so that the exculpatory 

provisions apply only in the specified circumstances. See 30 Richard A. Lord, Williston 

on Contracts § 77.38 (4th ed. 1999) (“The express terms of a contract can be pertinent 

evidence in undermining a supposed implied condition.”). If the Government intended 

or expected to have unilateral control over its legal obligation to perform, control that 

could be exercised by the simple expedient of a change in its own law or policy, it hardly 

would need the protections that the provisions in the contracts afford. 

b. State Law 

Changes in state law, however, present a somewhat different question. 

California is not a party to these contracts. A change in the applicable state law is not 

the same kind of unilateral action by a party to the contracts as when the change is 

made by the Federal Government. The issue about illusory contracts and 

misrepresentation is attenuated. Further, as noted earlier, the original legislation 

creating the CVP made the Federal Government’s access to the Project’s water subject 

to the State of California’s laws and rules governing water rights. At the time the 

contracts were executed, Reclamation had complied with the state requirements then in 

2007-5142 20
force and had obtained the necessary permits from the SWRCB. At that time, as far as 

the contracting parties were concerned, the Government could only expect to deliver the 

water that it controlled pursuant to state law, and the two state-created agencies that 

are the plaintiffs no doubt understood this. 

The Government argues accordingly that the Districts’ contract rights have 

always been subordinate to the requirements of state law as provided in the state 

permits for New Melones, including releases for senior water rights holders, water 

quality, and fishery. The Districts in fact do not contest that releases of water for these 

specified uses take priority over the Districts’ contracts; the Districts so stipulated.31 

The Government then argues that, as a consequence of these mandated 

releases, “in some years, the releases of water to satisfy state law utilized a large 

portion of the water available from New Melones Reservoir. . . . Thus, at least for some 

years, the Districts’ concession that their contract rights are subordinate to 

Reclamation’s obligation to satisfy state permit requirements may dispose of their entire 

claim.”32 The Districts respond that the Government did not produce actual evidence 

that operating New Melones in accordance with state law and pursuant to the state 

permits necessarily caused a shortage of water for consumptive uses in any given year. 

They cite as an example the year 1994, the only year at issue designated as a “critical” 

water year (see Annual New Melones Data, col.2, J.A. at 4976, a copy of which is 

appended to this opinion as Appendix A). In that year, releases from New Melones for 

senior water rights holders and to satisfy state permit requirements totaled some 

700,000 acre-feet of water, and CVPIA releases totaled an additional 70,600. The 

 31 Appellants’ Br. 14. 

32 Appellee’s Br. 19-20 (emphasis added). 

2007-5142 21
Districts note that, even so, there remained some 425,000 acre-feet in storage at New 

Melones, and that it was within the discretion of Reclamation to allocate some water to 

the contracts, rather than, as was the case, provide none. 

It is not clear from the Government’s argument whether the state mandates that 

allegedly caused the shortages were mandates included in the original state permits, or 

were mandates that, like the CVPIA statute, were enacted after the contracts were in 

place. However, that may not matter to the Government’s position. As we understand 

that position, changes in management practices, however mandated, were inherently 

the Government’s right, and that, apparently, these changes need not be specifically 

justified by the particular circumstances. 

In that the Government errs. A party to a contract generally has the option of 

performing or paying damages for non-performance. If the Government chooses to not 

perform but wishes to avoid having to pay damages, arguing that “the state made me do 

it,” then the Government must prove it was the state mandates that caused the 

unavailability of water to meet the Government’s contract obligations and not simply 

choices that the Government made. 

There is no doubt that the State imposed substantial mandates for use of the 

water in the CVP, including New Melones, mandates to meet senior water rights and 

fish and wildlife needs and water quality concerns. Some of these mandates were built 

in to the permit that initially authorized the New Melones withdrawals, and some came 

later. The trial court in various parts of its opinion set out in extensive detail what these 

mandates were, and how they changed over the years at issue. See Stockton, 75 Fed. 

Cl. at 334 (senior water rights); id. at 335-36 (SWRCB requirements); id. at 336 (initial 

2007-5142 22
fish and wildlife releases); id. at 337 (in-basin needs); id. at 339 (fishery releases); id. at 

342 (salinity requirements at Vernalis). 

However, what is missing from the record, from the Government’s argument, and 

from the trial court’s conclusions, is the necessary showing of a causal connection 

between the particular state mandates and Reclamation’s inability to meet its 

obligations under the contracts. The Government did not establish nor did the trial court 

find the critical connection between the state law mandates, whatever they were, and 

the management practices of Reclamation that caused the shortages. 

The Government was on notice that this question of causal connection was in 

contention. The Districts made it a point of their case at trial and again on appeal to us. 

They argued that there was insufficient evidence that the shortages in their contracts 

were caused by anything except unilateral decisions by Reclamation regarding how the 

available water was to be allocated, and that those decisions breached the contracts. If 

there was evidence that something other than Reclamation’s decision making caused 

the breaches, the Government had fifteen years of litigation in which to make its case of 

record. It is a part of the Government’s affirmative defense that state law and policy 

caused the shortages, rather than simply Federal management choices; the burden of 

persuasion resides with the Government. 

c. Burdens of Proof 

With regard to this burden of persuasion and who has what, a considerable part 

of the trial court’s opinion and the parties’ briefs and arguments before this court were 

devoted to the question of who had what burden of proof, on this issue as well as 

2007-5142 23
others. Much of that discussion and argument about the issue is confused and difficult 

to follow. 

The rules governing the allocation of the burdens of proof are straightforward. 

When dealing with burdens of proof it is essential to distinguish between two distinct 

burdens, the burden of persuasion and the burden of production (sometimes described 

as the burden of going forward). Since this is a suit for breach of contract, it is 

elementary that the plaintiff Districts have the burden of persuasion on the issues of 

whether there is a contract, and whether that contract was breached by defendant 

United States. 23 Richard A. Lord, Williston on Contracts § 63:14 (4th ed. 1999) (“The 

plaintiff or party alleging the breach has the burden of proof on all of its breach of 

contract claims.”). Here, the record, the trial court’s findings and conclusions, and the 

defendant’s concessions, all support the determination that plaintiffs carried their burden 

on these issues. 

Once the Government’s breach of contract has been established, the 

Government is liable for the breach and ensuing damages, unless it can prove an 

affirmative defense of some kind that absolves it from that liability. As explained earlier, 

the Government mounted three affirmative defenses. For each of these defenses, the 

Government has the burden of persuasion; the plaintiff Districts have no burden to 

carry, beyond the burden of going forward with whatever efforts they may undertake to 

disprove the alleged defenses. Id. (“Once the facts of breach are established, the 

defendant has the burden of pleading and proving any affirmative defense that legally 

excuses performance.”). 

2007-5142 24
After considering the evidence on both sides of the issue, the court must grant 

judgment for the plaintiff Districts with regard to each of the affirmative defenses for 

which the Government has failed to carry its burden of persuasion, applying the usual 

standards of proof for civil litigation. The proponent of the affirmative defense must 

prove all elements of the defense.33 

On this record, we conclude that, since the Government has not carried its 

burden of proving its affirmative defense that the shortages were entirely or to some 

specified extent the result of state requirements for fishery and other such uses, the 

Government’s defense on this point fails. Further, the Government’s position is not 

helped by its invocation of ‘background principles’ of California water law. The issue 

here is not the fundamentals of rights vis-à-vis the United States and the State of 

California regarding its water, but the obligations, once the water is under the control of 

the United States, between Reclamation and the Districts pursuant to their contracts. 

2. The Contract Provision Defense: Was the failure to perform 

excused by specific contract provisions? 

The two contract provisions that lie at the heart of this Government defense are 

Articles 9 and 12. Article 9 of the Stockton East contract, entitled “Water Shortage and 

Apportionment,” reads (with emphases added): 

 9. (a) In its operation of the Project, the United States will use all 

reasonable means to guard against a condition of shortage in the quantity 

of water available to the Contractor pursuant to this contract. 

Nevertheless, if a shortage does occur during any year because of 

drought, or other causes which, in the opinion of the Contracting Officer

[i.e., the Secretary of the Interior or his duly authorized representative], are 

beyond the control of the United States, no liability shall accure [sic]

 33 For a further explication of burdens of proof, burden of persuasion, and 

the shifting burden of going forward, see the discussion in Technology Licensing Corp. 

v. Videotek, Inc., 545 F.3d 1316 (Fed. Cir. 2008). 

2007-5142 25
against the United States or any of its officers, agents, or employees for 

any damage, direct or indirect, arising therefrom. 

 (b) In any year that the Contracting Officer determines that there 

is a shortage in the quantity of water available to customers of the United 

States from the New Melones Unit of the Project, the Contracting Officer 

will apportion available water among the water users capable of receiving 

water from said Unit, consistent with the existing contracts and Project 

authorizations. During such water short years, the quantity of water 

available to the Contractor pursuant to the terms of this contract shall be 

reduced, as necessary, to meet the full needs of the Basin contractors and 

the needs of Central San Joaquin Water Conservation District for its firm 

and interim water supply. . . .34

Article 12(d) governs determinations made by the parties under the contract: 

Where the terms of this contract provide for action to be based upon the 

opinion or determination of either party to this contract, whether or not 

stated to be conclusive, said terms shall not be construed as permitting 

such action to be predicated upon arbitrary, capricious, or unreasonable 

opinions or determinations. 

a. Interpretation of the Applicable Articles 

The Government points to the phrase in Article 9 that absolves the Government 

from liability “if a shortage does occur during any year because of drought, or other 

causes which, in the opinion of the Contracting Officer are beyond the control of the 

United States.” The Government argues that this phrase has the effect of vesting in the 

contracting officer discretion over the determination of whether a shortage is beyond the 

Government’s control. The Government further argues that, in any case, under Article 

12 it is the plaintiffs who bear the burden of proving that the contracting officer’s 

decision not to provide the contracted-for water was arbitrary, capricious, or 

unreasonable. According to the Government, the trial court did not err in holding that 

 34 Article 9 of the Central contract is identical, except that the second 

sentence of section (b) ends after “Basin contractors.” Thus, the needs of Central are to 

be satisfied before any water is delivered to Stockton East. 

2007-5142 26
plaintiffs failed to carry their burden because Reclamation followed proper procedure in 

invoking the shortage provision in each of the affected years, including notifications to 

the parties. 

The Districts respond that the provision in Article 9 is simply a typical force 

majeure provision, and that it applies only to drought and other ‘acts of God.’ And in 

any case, the burden of proof of whether the contracting officer correctly invoked the 

provision is on the Government whose defense it is, and not on the plaintiffs. 

The Districts are correct. First, as previously discussed, the burden of proof—the 

burden of persuasion with regard to this defense—began with and remained with the 

Government. The procedural niceties followed by Reclamation and that preceded the 

Government’s breach of contract do not change that. 

Second, the plain meaning of the critical part of the phrase at issue, “because of 

drought, or other causes which . . . are beyond the control of the United States” on its 

face excludes anything that is within the control of the United States. Examples of 

causes beyond the control of the United States, in addition to a drought, might be 

earthquakes, sabotage (assuming the Government had taken proper precautions), an 

internal failure of the dam, and other such causes. 

By contrast, changes in law, or changes in government policy, or changes in 

management practices brought about by the Government’s changes in law or policy, are 

all causes within the control of the United States. The fact that certain changes in 

management of the New Melones unit by Reclamation were the result of mandates by 

Congress regarding the allocation between consumptive and non-consumptive uses of 

the water in the CVP—mandates that Reclamation may not have had a voice in—is 

2007-5142 27
nonetheless a change within the control of the “United States,” a term that of course 

includes Congress as well as the administering agency. 

Indeed, it does not matter under this branch of the case if the federal change in 

management practice was in response to a change in allocation policy by the state, 

rather than a change mandated by the federal government itself. This is because a 

federal decision to adjust its management of the CVP to accommodate a change in 

state allocation policy is a policy decision determined by the Federal Government itself. 

Nothing in the contracts, in particular Article 9, as written absolves the Government from 

liability for the allocation decisions it makes unless they are caused by an event 

included within the scope of Article 9(a). 

The interior clause, “in the opinion of the Contracting Officer,” cannot change the 

intent or thrust of the governing phrase in Article 9(a). At most, it gives the Contracting 

Officer some leeway in assessing how much of a shortage condition may have resulted 

from actions within the Government’s control and how much from causes beyond its 

control. At a minimum, under Article 12(d), it would be arbitrary and capricious on its 

face for the Contracting Officer to determine that a conscious change in allocation 

practice, made by Reclamation in response to a change in law or policy, is not within the 

control of the United States. 

Is our reading of the plain meaning of this provision consistent with the intent of 

the parties at the time the contracts were executed, since contract interpretation is 

fundamentally a question of the contracting parties’ intent? In this case we have the 

2007-5142 28
testimony of both parties’ representatives on this point, the officials who were 

responsible for the contracts.35 

The General Manager of Stockton East and the General Counsel of Central both 

testified to the effect that Article 9(a) was understood at the time the contract was 

executed to provide for shortages caused by external circumstances, for example there 

could be a reduced amount of water in dry years or as a result of other physical 

problems, such as failure of the reservoir or earthquakes. Stockton, 75 Fed. Cl. at 357. 

The official who signed the 1983 contracts on behalf of Reclamation also testified. He 

responded to a direct question with regard to who bore the risk under Article 9 of future 

changes in the Reclamation law. He answered in the same vein: though Article 9 did 

not expressly allocate the risk, “‘my expectation is that if you have a contract, the United 

States would live up to its contracts the same way any private party would . . . that 

everybody will honor their contracts.’” Id. at 358. 

The trial court acknowledged the import of that testimony, but considered it 

trumped by the Ninth Circuit opinion in O’Neill v. United States, 50 F.3d 677 (9th Cir. 

1995), a case on which the Government placed great weight. Stockton, 75 Fed. Cl. at 

358-59. O’Neill dealt with rights under a similar contract, again involving use of water 

from the CVP. However, the exculpatory clause in that case—the clause equivalent to 

Article 9 here—was different in significant respects. 

The language there was “in no event shall any liability accrue against the United 

States . . . for any damage . . . arising from a shortage on account of errors in operation, 

 35 Ordinarily when a provision is found to have a plain meaning, that is 

deemed to conclusively establish the parties intent. McAbee Constr., Inc. v. United 

States, 97 F.3d 1431, 1435 (Fed. Cir. 1996). Here, because the trial court thought the 

provision ambiguous, the court took extensive testimony on the issue. 

2007-5142 29
drought, or any other causes.” O’Neill, 50 F.3d at 682 n.2. As plaintiffs note, that 

language is much broader—the examples offered are not limited to drought or similar 

causes, but include “operation [and] any other causes.” Most significantly, there is no 

limitation to causes “beyond the control of the United States.” Thus, even assuming the 

Ninth Circuit correctly held that that language makes unavailability of water resulting 

from the mandates of later legislation a shortage for which the United States is not 

liable, the O’Neill case is not persuasive in determining the meaning of the different 

language used in Article 9(a) of the Stockton East and Central contracts. And of course 

the facts of the Ninth Circuit case do not tell us anything about the express intent of the 

parties regarding the relevant contract provisions in this case. 

With this understanding of the contract provisions, we are confronted with the key 

question that lies at the heart of Article 9(a)—during any of the years at issue in the 

case, were there circumstances of drought (or other cause within the proper meaning of 

Article 9(a)) that could excuse the Government’s failure to provide the contracted-for 

quantities of water? As far as drought is concerned, the table of Annual New Melones 

Data for the years 1993 to 2004 (Appendix A) indicates that seven of those years were 

wet or above normal, one was below normal, three were dry, and one was “critical.” 

What is the evidence, and what are the trial court’s findings and conclusions, that 

support a determination that drought or other of the causes under Article 9(a) lay at the 

root—were the cause of—Reclamation’s failure to provide the contracted-for quantities 

of water? With the possible exception of two of the years, 1994 and 1995, there is 

none. 

2007-5142 30
As previously explained in the Background section, for the year 1994 the contract 

required Reclamation to provide at a minimum 23,350 acre-feet of water to Stockton 

East and 28,000 acre-feet to Central. Stockton East requested 75,000 acre-feet, and 

Central requested 25,000. Reclamation provided no water to either. Reclamation’s 

explanation for this breach of the contract cited the general drought conditions, and 

noted that “every effort is needed to avoid allowing the level of New Melones reservoir 

to drop below the minimum storage level (300,000 acre-feet) needed to generate 

power. . . . The available water will be allocated to fish and wildlife, and to meet water 

quality requirements.” J.A. at 3963 (Def.’s Ex. 276). 

The trial court held that Reclamation made the determination of shortage on the 

basis of forecasted hydrology measured against available water storage levels in the 

New Melones reservoir, held that “the evidence does not support a finding that 

Reclamation violated Article 12(d),”36 and concluded that Reclamation validly invoked 

Article 9(b)’s shortage provision, thereby excusing its non-performance. We note, 

however, that New Melones started the year 1994 with more than 747,000 acre-feet in 

its reservoir, and ended the year, despite the drought and after providing for other uses, 

with 425,000. Had Reclamation provided the 100,000 acre-feet requested by the 

Districts, there would have remained something over 325,000 acre-feet, more than the 

minimum needed for power production. Nevertheless, given the uncertainties of supply 

in a critically dry year, and in order to accord the trial court the deference it is entitled to, 

we uphold the court’s conclusion and affirm its judgment of no liability for the 

Government for that year. 

 36 Stockton, 75 Fed. Cl. at 364. 

2007-5142 31
The year 1995 is similar. In that year, the minimum contract obligation for the 

two Districts was essentially the same as in 1994, in the range of 25,000-30,000 acrefeet for each. Stockton East initially requested 65,000 acre-feet, and Central 50,000. 

After negotiations with Reclamation, the requests were scaled down during the year. 

Reclamation cited the general drought and the related water level conditions as the 

reason for its inability to meet the requests, and ultimately delivered only about 4,000 

acre-feet to each. The trial court held that “the determination of the contracting officer 

that the shortage was due to causes outside of the control of the United States is 

supported adequately by the facts,”37 and again concluded that Reclamation validly 

invoked the relevant contract provisions so as to excuse its non-performance. Again we 

note that the year 1995 started with 425,000 acre-feet in the reservoir, and, being a wet 

year, this time the year concluded with something over 1,800,000 acre-feet, leaving us 

with a large question about why Reclamation could not meet the relatively minor 

requests of the Districts for that year. Nevertheless, based on the court’s explicit 

evidentiary findings and conclusions which, under the circumstances, we cannot say are 

clearly erroneous, we again affirm the trial court’s conclusion in favor of the Government 

for that year. 

That, however, is as far as we can go on the record before us. With regard to the 

remaining years at issue, 1999-2004, the trial court made no such explicit findings and 

the Government has offered no persuasive explanation for the absence of proof of its 

defense under Article 9(a) for those years. Furthermore, with the exception of the year 

1994 discussed earlier, when New Melones storage was down to 425,504 acre-feet, 

 37 Stockton, 75 Fed. Cl. at 364. 

2007-5142 32
and the preceding year, 1993, at 747,512 acre-feet, all the years from 1993 to 2004 had 

storage levels well above 1,000,000 acre-feet. 

Here again the Government was on notice that evidence regarding the impact of 

the conditions of drought was relevant. The Districts’ view of how Article 9(a) should be 

understood was extensively litigated before the trial court, and made a major matter of 

contention on appeal. If, in the course of the years of litigation, the evidence was 

available to the Government that drought caused the shortages of water to the Districts, 

it behooved the Government to make that evidence of record. It could be expected that, 

if there was available evidence to support the argument, the Government would have 

responded to the Districts’ case by arguing that, even assuming the Districts’ 

interpretation of Article 9(a) was correct, under the facts of the case the Districts still 

lose. Having failed to make its case, and given the apparent surplus of water in the 

New Melones Unit for all of the relevant years, which, as the Districts allege, clearly 

suggests that drought was not the reason for Reclamation’s failure to meet the contract 

requirements, the failure of the Government to prove its affirmative defense with regard 

to the years 1999-2004 means that judgment for the Districts on this point should have 

been granted. 

b. The “All Reasonable Means” Issue 

Plaintiff Districts and the Government dispute whether Reclamation, in dealing 

with the water allocations in the years at issue, complied with the opening phrase of 

Article 9(a) that “the United States will use all reasonable means to guard against a 

condition of shortage in the quantity of water available to the Contractor pursuant to this 

contract.” Whether that language actually adds anything to the Government’s 

2007-5142 33
obligations under the contracts is an open question. Surely both parties to the contracts 

have a common law duty to perform their contractual duties fairly and in good faith. “A 

covenant of good faith and fair dealing is implied [in] all contracts. The covenant 

imposes on a party . . . the duty . . . to do everything that the contract presupposes 

should be done by a party to accomplish the contract’s purpose.” 30 Richard A. Lord, 

Williston on Contracts § 77.10 (4th ed. 1999). Furthermore, as a matter of law, a 

government agency is obligated to not act in a manner that is arbitrary or capricious. 

See Administrative Procedure Act, 5 U.S.C. § 706(2)(A). Whether that amounts to an 

obligation to use all reasonable means to perform its contracted duties is an interesting 

question. 

The simple answer to this apparent conundrum is that on these facts it is of little, 

if any, consequence. Let us assume, as the Government insists and the plaintiffs deny, 

that Reclamation used all reasonable means to avoid shortages under the 

circumstances in which it found itself—Reclamation was unable to both comply with the 

new allocation priorities and its contractual obligations, so it reasonably under the 

circumstances chose to breach the contracts. Does that provide a defense to its breach 

of the contracts? The short answer is no. The abstract question of whether 

Reclamation used all reasonable means to avoid breaching the contracts is beside the 

point—a “reasonable” breach of contract is nonetheless a breach. 

2007-5142 34
Let us assume the alternative—except for the two years 1994 and 1995, the 

Government did not use all reasonable means to avoid shortages.38 Does that add 

anything to the conclusion that there was a breach of contract, or to the conclusion that 

the Government’s defenses to that breach are unavailing? Absent a showing that 

punitive damages are warranted—not present in this case—the moral basis for liability 

generally is irrelevant to contract damages. 

3. The Sovereign Acts Defense: Does it absolve 

the Government of liability? 

The Government, anticipating that it might find itself in extremis on its other 

defenses, falls back on the classic government defense invoked whenever a 

Congressional enactment or other official government action unsettles what were 

thought to be settled contractual arrangements. The Government argues that the act of 

Congress in question, the CVPIA, and the implementation of the CVPIA by 

governmental agencies, are sovereign acts, and any incidental (and presumably 

unintended) consequences are simply that, for which the Government cannot be held 

liable. The argument does not often work; in this case the trial court rejected it, as do 

we. 

The sovereign acts defense was born of a trio of cases decided by the Court of 

Claims in the nineteenth century. See Conner Bros. Constr. Co. v. Geren, 550 F.3d 

1368, 1372 (Fed. Cir. 2008) (discussing Deming v. United States, 1 Ct. Cl. 190 (1865), 

Jones v. United States, 1 Ct. Cl. 383 (1865), and Wilson v. United States, 11 Ct. Cl. 513 

 38 With regard to those two years, the trial court found that the Government 

had in fact acted reasonably. Since on the complexity of the conditions then prevailing 

we found no basis for saying that finding was clearly erroneous, the assumption is 

inapplicable. 

2007-5142 35
(1875)). The definitive statement of the doctrine is credited to the Supreme Court’s 

opinion in Horowitz v. United States, 267 U.S. 458, 461 (1925), in which the Court, 

citing those Court of Claims cases, said, “the United States when sued as a contractor 

cannot be held liable for an obstruction to the performance of the particular contract 

resulting from its public and general acts as a sovereign.” 

The basic notion of the sovereign acts doctrine is that the United States as a 

contracting party acts in a different capacity from its role as a sovereign. As a 

contractor, it stands in the same shoes as any private party would in dealing with 

another private party; as a sovereign, it stands apart. The acts of the one are not to be 

‘fused’ with the other—if an act of the Government as sovereign would justify nonperformance by any other defendant being sued for contract breach, then the 

Government as contractor is equally free from liability for non-performance. 

Recently, the sovereign acts doctrine was the Government’s final line of defense 

in the multi-billion dollar liability action arising from Congress’s intervention in the 

savings and loan imbroglio. The Supreme Court’s plurality opinion in that case, United 

States v. Winstar Corp., 518 U.S. 839 (1996), discussed at length the application of the 

sovereign acts doctrine, id. at 891-911; that discussion has become the current 

understanding of the doctrine. See Conner Bros., 550 F.3d at 1374 (“[T]his court has 

treated [the plurality opinion in Winstar] as setting forth the core principles underlying 

the sovereign acts doctrine.”) 

In Winstar, the Court explained that “[a]s Horowitz makes clear, [the sovereign 

acts] defense simply relieves the Government as contractor from the traditional blanket 

rule that a contracting party may not obtain discharge if its own act rendered 

2007-5142 36
performance impossible.” 518 U.S. at 904. The Court posed a two-part test, first asking 

“whether the sovereign act is properly attributable to the Government as contractor.” Id.

at 896. That is, is the act simply one designed to relieve the Government of its contract 

duties, or is it a genuinely public and general act that only incidentally falls upon the 

contract? If the answer is that the act is a genuine public and general act, the second 

part of the test asks “whether that act would otherwise release the Government from 

liability under ordinary principles of contract law.” Id. at 896. This second question 

turns on what is known in contract law as the “impossibility” (sometimes 

“impracticability”) defense. As the Court in Winstar put it, “even if the Government 

stands in the place of a private party with respect to ‘public and general’ sovereign acts, 

it does not follow that discharge will always be available, for the common-law doctrine of 

impossibility imposes additional requirements before a party may avoid liability for 

breach.” Id. at 904. 

Regarding the first part of the test, the Supreme Court in Winstar noted two polar 

interpretations of what is a public and general act. One is that any official act by the 

sovereign may qualify as a public and general act regardless of its contractual 

consequences. The polar opposite is that any act that benefits the sovereign directly by 

relieving it of its contractual duties in any way is disqualified. Id. at 899. The Court then 

stated: “Our holding that a governmental act will not be public and general if it has the 

substantial effect of releasing the Government from its contractual obligations strikes a 

middle course between these two extremes.” Id. (emphasis added). Another way of 

stating the test for whether a governmental act is public and general is that “the 

2007-5142 37
sovereign acts defense is unavailable where the governmental action is specifically 

directed at nullifying contract rights.” Conner Bros., 550 F.3d at 1374. 

The trial court in this case did not address the question of whether the CVPIA 

qualifies as a public and general act, turning instead to the second question: was the 

ability of the Government to provide the contracted-for quantities of water rendered 

impossible by the enactment of the CVPIA? At trial, the Districts argued that 

performance was not impossible because Reclamation could have fulfilled CVPIA 

water-release requirements by taking water from other CVP reservoirs rather than from 

New Melones. See Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed. 

Cir. 2002) (under the common-law doctrine of impossibility, performance is excused 

only when it is objectively impossible to carry out the contract). The trial court 

concluded that the Government “did not meet its burden of proof regarding impossibility 

of performance due to CVPIA § 3406(b)(2), and therefore, would be barred from 

invoking the sovereign acts and unmistakability doctrines, if liability had been found for 

breach of the 1983 Contracts.” Stockton, 75 Fed. Cl. at 373. 

The focus of the Government’s argument on appeal is that the trial court defined 

the scope of the sovereign act too narrowly. Citing Casitas Municipal Water District v. 

United States, 543 F.3d 1276, 1287-88 (Fed. Cir. 2008), the Government contends that 

the sovereign act at issue includes not only the CVPIA but also the decision by 

Reclamation and FWS39 to use water from New Melones to satisfy CVPIA 

requirements. But even assuming the sovereign act is understood to include the 

 39 The Government alleges that FWS dictated how much of the 800,000 

acre-feet of water required by CVPIA § 3406(b)(2) was to come from New Melones 

each year. 

2007-5142 38
agencies’ discretionary implementation of the CVPIA, the Government would have to 

demonstrate that the agencies’ actions made it impossible for Reclamation to deliver to 

the Districts the full amount of water provided for in the contracts, a showing the 

Government has not made. 

Furthermore, even if the specific implementation of the CVPIA chosen by the 

agencies rendered performance impossible, the Government cannot rely on the 

sovereign acts doctrine without returning to the first part of the test and establishing that 

such implementation is a public and general act. Here it is obvious that Reclamation’s 

operational decisions to comply with the CVPIA by denying water to the Districts in 

violation of its duties under the contract fail the test of a “public and general” act. The 

only users affected negatively by Reclamation’s actions were the Districts. The conduct 

of Reclamation in shorting the Districts, presumably in order to make the water available 

for other users, was directly aimed at the contracts and Reclamation’s duties under 

them, nullifying the rights of the Districts to receive water under the contracts. Whether 

viewed in terms of having a “substantial effect of releasing the Government from its 

contractual obligations,” Winstar, 518 U.S. at 899, or as a “governmental action . . . 

specifically directed at nullifying contract rights,” Conner Bros., 550 F.3d at 1374, 

Reclamation’s acts here cannot qualify as public and general. 

Whether under the first part or the second part of the analysis set out by the 

Supreme Court, the Government’s sovereign acts defense does not survive scrutiny. 

The trial court correctly rejected that defense, and is affirmed on that point. 

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C. The Takings Issue 

The trial court early in its opinion noted that the takings claim, which was initially 

the reason why the case was transferred from the district court to the Court of Federal 

Claims, was stayed pending resolution of the contract claim. The latter claim was 

raised by plaintiffs in an amendment to the complaint after the transfer. The trial court 

expressly stated that “[t]he takings claims [sic] were stayed pending resolution of the 

contract claims [sic] and were not at issue at trial.” Stockton, 75 Fed. Cl. at 324 n.2. 

Some fifty pages later, the trial court ruled, without further opportunity for the 

parties to be heard, that the takings claim was dismissed. The court, citing Hughes 

Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2002), opined 

that, since there was a contract claim, the Government was acting in its commercial 

capacity and a separate constitutional takings claim could not lie. Stockton, 75 Fed. Cl. 

at 373-74. That is not a correct understanding of the law. 

It is true that there is language in earlier cases from this court to the effect that 

“[i]n general, takings claims do not arise under a government contract because . . . the 

government is acting in its proprietary rather than its sovereign capacity, and because 

remedies are provided by the contract.” See St. Christopher Assocs., L.P. v. United 

States, 511 F.3d 1376, 1385 (2008) (citing Hughes, 271 F.3d at 1070). But that 

language is nothing more than a passing comment about government contract law, and 

has to be understood in that context. 

It cannot be understood as precluding a party from alleging in the same 

complaint two alternative theories for recovery against the Government, for example, 

one for breach of contract and one for a taking under the Fifth Amendment to the 

2007-5142 40
Constitution. That is expressly permitted by the Federal Rules, and the fact that the 

theories may be inconsistent is of no moment. See Fed. R. Civ. P. 8(d)(3) (“A party 

may state as many separate claims . . . as it has, regardless of consistency.”). 

On the other hand, it can be understood to mean that, when a case arises in 

which both a contract and a taking cause of action are pled, the trial court may properly 

defer the taking issue, as it did here, in favor of first addressing the contract issue. It 

has long been the policy of the courts to decide cases on non-constitutional grounds 

when that is available, rather than reach out for the constitutional issue. See Nw. Austin 

Mun. Util. Dist. No. One v. Holder, 129 S. Ct. 2504, 2513 (2009). And of course when a 

plaintiff is awarded recovery for the alleged wrong under one theory, there is no reason 

to address the other theories. 

In Hughes, the plaintiff, having been awarded contract damages against the 

Government, sought prejudgment interest on its damages award as if there had been a 

simultaneous Fifth Amendment taking. The trial court refused to award the interest. On 

appeal, we affirmed the trial court. We noted that “[t]his court’s predecessor has 

cautioned against commingling takings compensation and contract damages,” and 

explained that these were two separate causes of action, one based on the Government 

acting in its proprietary capacity, and one based on the Government as sovereign. 

Hughes, 271 F.3d at 1070. Our court went on to note that, in any event, plaintiff had 

failed to prove a taking, only a contractual right. Id.

In Sun Oil Co. v. United States, 572 F.2d 786 (Ct. Cl. 1978), also cited as support 

by the trial court, the suit was by a group of oil companies against the United States for 

an alleged breach of a lease agreement including denial of a permit. The court held for 

2007-5142 41
the oil companies on the permit issue. Plaintiffs had also included in their complaint a 

Fifth Amendment takings claim, regarding which the court commented that it was 

difficult to tell whether that claim was an independent and additional claim or an 

alternative claim. The court treated it as an alternative claim, and opined that “recovery 

on one claim theory would seem to preclude recovery on the other claim theory.” Id. at 

817-18. Nevertheless, because the parties had placed much importance on the takings 

question, the court proceeded to discuss it, and held there was no taking. Id. at 819. 

It is well established, as these cases explain, that a party can obtain only one 

recovery for a single harm regardless of how many legal theories there may be for a 

recovery. In our case, while one recovery is all that can be had for the same harm, the 

fact that a cause of action was pled under a contract theory did not preclude a separate 

count for a cause of action based on a taking. Certainly this is the case when the 

Government alleges it was acting within its authority in breaching the contract. Of 

course, as Sun Oil illustrates, the fact that an alternative theory for recovery can be 

posited does not mean that a recovery under that theory will prevail. 

In this case, the trial judge denied the contract claim, and then dismissed without 

trial the takings claim on the ground that the contract claim precluded the takings claim. 

That is error. To the extent that the trial court purported to issue a judgment regarding 

the takings count in the complaint, that judgment is vacated. 

*************************************** 

To sum up: the Districts and Reclamation have binding contracts for specified 

quantities of water which Reclamation is obligated to provide. As the trial court found, 

Reclamation failed to provide those specified quantities in the years at issue. The first 

2007-5142 42
defense raised by the Government, that Reclamation had implicit authority to reallocate 

the water in the New Melones unit in response to a change in law and policy, is not a 

valid defense on this record. The second defense raised by the Government, that the 

shortages were the result of causes “beyond the control of the United States” such as to 

absolve it under the contract provisions, specifically Articles 9(a) and 12(d), again, with 

the exception of 1994 and 1995, on this record fails for lack of proof. Except for those 

two years, the trial court’s contrary determinations regarding these defenses are 

reversed. 

With regard to the defense under the sovereign acts doctrine, the trial court was 

correct; that doctrine is unavailing and the trial court is affirmed thereon. Finally, as 

noted, the dismissal of the takings claim is vacated. The Districts are free to pursue 

their takings claim if they so choose with regard to the years for which the Government 

has been found not liable as a matter of contract law. We offer no opinion on the 

validity or propriety of such a claim. 

Regarding the breach of contract claim here before this court, the case is 

remanded for a determination of damages for the years for which the Government is 

liable. 

CONCLUSION 

AFFIRMED-IN-PART, REVERSED-IN-PART, VACATED-IN-PART, and REMANDED

GAJARSA, Circuit Judge, dissents. 

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APPENDIX A – ANNUAL NEW MELONES DATA (J.A. 4976) 

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