# In the United States Court of Federal Claims

No. 14-817C

(Filed: June 29, 2015)

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Rule 12(b)(1) Moti on to Dismiss; Subject Matter Jurisdiction; Rule 12(b)(6) Motion to Dismiss; Failure to State a Claim Upon Which Relie f Can Be Granted; Illegal Exaction Claim; Section 3407(d), Central Valley Project Impr ovement Act. *

N ORTHERN CALIFORNIA POWER * AGENCY, et al. , *

* Plaintiffs, *

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v. *

* THE UNITED STATES, *

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Defendant. *

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David T. Ralston, Jr. , with whom were Jay N. Varon

, Frank S. Murray

, Jennifer M. Forde

, and Anna S. Ross , Foley & Lardner LLP, Washington, D.C., Michael F. Dean , General Counsel, Northern California Powe r Agency, Sacramento, California, Barry E. DeWalt

, Assistant City Attorn ey, City of Redding, Brita J. Bayless , City Attorney, C ity of Roseville,

and Richard E. Nosky, Jr. , City Attorney, City of Santa Clar a, Of Counsel, for Plaintiffs.

P. Davis Oliver , with whom were Benjamin C. Mizer , Principal Deputy Assistant Attorney

General , Robert E. Kirschman, Jr. , Director, and Franklin E. White, Jr. , Assistant Director, Commercial Litigation Br anch, Civil Division, U.S. Depart ment of Justice, Washington, D.C., for Defendant.

OPINION AND ORDER ON

DEFENDANT’S MOTION TO DISMISS

WHEELER, Judge.

Plaintiffs Northern Californ ia Power Agency (“NCPA”), 1 and the cities of Redding, Roseville, and Santa Clara, California allege an illegal exaction and seek recovery of payments that they claim were unlawfully assessed and collected by the Bureau of

1 NCPA is a joint powers agency in California comp rised of fifteen members including “municipalities, a rural electric cooperative, and other publicly-owned entities interested in the purchase, aggregation, scheduling, and management of electrical energy.” Pl.’s Compl. ¶ 12.2 Reclamation under Section 3407(d) of th e Central Valley Project Improvement Act (“CVPIA”), Pub. L. 102-575, 106 Stat. 4600, 4706-4731. Plain tiffs claim that Reclamation ignores the proportionality manda te in Section 3407(d) of th e CVPIA and instead, follows a revenue-maximizing payment sc heme that illegally assesses disproportionate payments

on Plaintiffs to fund fish and wildlife habitat restor ation projects within the Central Valley. On January 20, 2015, counsel for the Government filed a motion to dismiss under Rule 12(b)(1) and Rule 12(b)(6) for lack of subject matter jurisdicti on and failure to state a claim upon which relief can be granted. The Govern ment contends that the Court should dismiss

Plaintiffs’ case because Reclamation acted well within its statutory au thority to assess the disproportionate payments on Pl aintiffs and thus, there coul d be no illegal exaction. The motion was fully briefed by May 8, 2015 and the Court heard oral argument on June 17,

2015.

After careful review of the parties’ arguments, the Court concludes that the

Government’s motion is without merit. A mere assertion by the Government that it acted legally under the statute upon which Plainti ffs base their illegal exaction claim does not bar Plaintiffs from their right to have their cl aim adjudicated by the C ourt. Section 3407(d) provides a sufficient basis for the Court’s juri sdiction over Plaintiffs’ claim for an illegal exaction. If the Government violated the pr oportionality requirement in Section 3407(d), by necessary implication, the re medy would be a return of th e illegal and disproportionate payments that it assessed upon Plaintiffs. Plaintiffs also ad equately pled a claim for an illegal exaction in their compla int. According to the facts that Plaintiffs present, Reclamation does not consider proportionality as Section 3407(d) requires. Instead, Reclamation relies upon a revenue-maximizing scheme that imposes disproportionate burdens on Plaintiffs, who are re quired to pay far in excess of what Section 3407(d) allows them to pay to fund the restora tion projects in the Central Valley. These facts, if true, give rise to an illegal exaction cl aim. Accordingly, Defendant’ s motion to dismiss under Rule 12(b)(1) for lack of subject matte r jurisdiction and Rule 12(b)(6) for failure to state a claim upon which relief can be granted is DENIED.

Factual Background

In 1935, Congress created the Central Valle y Project to supply water to California farms and communities for agricultural, municipa l and industrial uses due to California’s scarce water resources. Pl.’s Compl. ¶¶ 2, 4. The Central Valley’s need for water is significant – it supplies eight percent of the Un ited States’ total agricultural output and onequarter of the nation’s food – but annual rain fall does not provide a reliable source of water for Central Valley farmers. Id.¶ 3. Today, the Central Valley Project is a “network of dams, reservoirs, canals and aqueducts” a nd is one of the nation’s largest federal3 reclamation projects, stretchi ng the length of California’s Ce ntral Valley, from the Cascade Range in the north, to the Kern River in the south. Id. ¶ 1.

The Central Valley Project is mana ged by the Bureau of Reclamation (“Reclamation”) of the United States Departme nt of Interior who oversees approximately

nine million acre-feet of water annually. Id. ¶ 4. “An acre-f oot of water is approximately 326,000 gallons” of wate r. Id. Each year, five million ac re-feet of water are delivered by the Central Valley Project for agricultural pur poses. Another 600,0 00 acre-feet of water are furnished for municipal and industrial pu rposes and another 1. 2 million acre-feet of water are dedicated to mitigation and restorati on purposes such as fi sh, wildlife, refuges and wetlands. Central Valley water district s and farmers, Califor nia municipalities, and other water users (“CVP Water Customers”) pay Reclamation for the wa ter they receive. Id. ¶ 5.

The delivery of much needed water to farms, businesses and residents is not the only benefit from the Central Valley Project. Th e dams built as part of the Central Valley Project allow the production of hydroelectric power. Id. ¶ 6. Reclamation, acting through the Department of Energy Western Area Power Administration (“Western”), sells the hydroelectric power created from the Central Valle y Project. Id. Plai ntiffs, among others (“CVP Power Customers” ), contract with Western to r eceive the electric power and pay Western for the power they purcha se. Id. ¶ 7. In addition to paying for the water and power they receive, CVP Water Customers and CVP Power Customers also pay the Government for the “allocated proportional reimbursable co sts of building, operating and maintaining the [Central Valley Project] (‘CVP Repayment Costs’).” Id. CVP Water Customers pay more than three-fourths of the CVP Repayment Costs while CVP Power Customers pay for less than one quarte r. Id. ¶¶ 7, 9-10 (approximately 22- 24 percent each fiscal year for

CVP Power Customers and more than 75 percent for CVP Water Customers).

In 1992, to offset the environmenta l impacts from the Central Valley Project, Congress passed the CVPIA. As part of th e CVPIA, Congress created a fund designated

as the “Restoration Fund” to re store the fish and wildlife hab itats within the Central Valley Project. In order to raise money for the Restoration Fund projec ts, the CVPIA requires

CVP Water Customers and CVP Power Customer s to contribute payments assessed by Reclamation. Id. ¶¶ 1, 8. The contribut ions from CVP Water Customers and CVP Power Customers include the additional annual mitiga tion and restoration payments that are at issue in this case. Id. ¶ 35. Besides th e additional annual miti gation and restoration payments, Congress also contemplated four other sources of revenue streams to be deposited into the Restoration Fund: (1) “add itional mitigation and restoration charges in

connection with renewal of cer tain long-term water contract s”; (2) revenues realized by

Reclamation “as a result of water transfers a nd the water pricing reforms included in the4 CVPIA”; (3) “per acre-foot surcharges on [C entral Valley Project] water delivered to entities receiving water from the Friant Division of the [Centr al Valley Project]”; and (4) money donated to the Restor ation Fund by non-federal entities. Id. ¶¶ 29-34.

From the five possible sources of revenue streams, Reclamation can collect up to $50 million for the Restoration Fund as appr opriated by Congress each year. Id. ¶ 29. However, Reclamation is subjec t to five limitations when collecting funds. First, the

CVPIA mandates that the additional annual mitigation and restora tion payments cannot exceed $30 million measured on a three-year rolling average. Seco nd, payments assessed against the CVP Water Customers cannot exceed $6.00 per acre-foot, adjusted for inflation, for agricultural water sold a nd delivered by the Central Valle y Project and $12.00 per acrefoot, adjusted for inflation, for municipal an d industrial water sold and delivered by the Central Valley Project. Id. ¶¶ 38-40. Thir d, Reclamation is required to reduce the additional annual mitigation an d restoration payments imposed on Central Valley Project

customers who use the water fo r agricultural purposes by taki ng into accoun t their ability to pay for such charges. Fourth, Reclama tion is required to reduce the annual ceiling for additional annual mitigation and restoration payments to $15 milli on once it completes the fish, wildlife, and habitation m itigation and restoration actions specified in Section 3406 of the Act. Finally, Reclamation is require d to consider proportionality under Section 3407(d): “[t]he amount of the mitigation a nd restoration payment made by Central Valley Project water and power users, taking into account all funds collected under this title, shall

, to the greatest degree practicable, be assessed in the same proportion, measured over a tenyear rolling average, as water and power users’ respective allocations for repayment of the Central Valley Project.” Id. ¶¶ 41 -43 (emphasis in original).

Since the inception of the Restoration Fu nd in 1992, Reclamation has sought to

maximize revenue from the additional annua l mitigation and restoration payments by seeking to collect the statutor y cap of $30 million, adjusted for inflation, from both water and power users. Reclamation does not consider proportionality. See Pl.’s Compl., Ex. 4. (chart). Instead, Reclamation calculates the di fference between what it expects to receive
from CVP Water Customers and $30 million, and then assesses that difference to Plaintiffs. Since water payments are capped at $6.00 pe r acre-foot and $12.00 per acre-foot, when water deliveries are low, Reclamation’s disreg ard of the proportionality requirement in the statute leads to a disproportio nate burden on Plainti ffs because they are required to make up the difference even if it w ould exceed their proportion of the CVP Repayment Costs. Id. ¶ 52. Recently, with California in a severe drought and with water deliveries dwindling, Reclamation has required Plain tiffs to pay approximately 40 .5 percent of the $30 million

Reclamation is allowed to collect from the additional annual mitigation and restoration payments, an increase of approximately 16-20 percent from Plainti ffs’ proportion of the CVP Repayment Costs. In 2014, it is estima ted that CVP Power Customers will pay up to5 60 percent of the total additiona l annual mitigation and restor ation payments, and in 2015, it is estimated they could pay as much as 75 pe rcent of the total. Ac cording to Plaintiffs, the disproportional assessment of the Restor ation Fund payments has caused CVP Power Customers to pay more than $120 million in ex cess charges. Id. ¶¶ 10-11. Plaintiffs now
seek reimbursement of the $120 million in Restoration Fund paym ents that they claim were assessed by Reclamation in violation of Section 3407(d)’ s proportionality provision.

Analysis

I. Standards for Decision

When deciding a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), the Court “accepts as true all uncontroverted factual a llegations in the complaint, and construes them in the light most favorable to the plaintiff.” Estes Exp. Lines v. United States, 739 F.3d 689, 692 (Fed. Cir. 2014). The Court’s task in considering a jurisdictional challenge is a limited one, and considers not whether the plai ntiff will ultimately prevail,

but “whether the claimant is en titled to offer ev idence to support the claims.” Forest Prods. Nw., Inc. v. United States, 62 Fed. Cl. 109, 120 (2004). The plaintiff has the burden of proof to establish subject matter jurisdicti on by a preponderance of the evidence. Estes Exp. Lines, 739 F.3d at 692.

For a Rule 12(b)(6 ) motion, plaintiffs need only a ssert “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A clai m is plausible on its face when “the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Granting a motion under Rule 12(b)(6) is “appropriate only when it is beyond doubt that the plainti ff can prove no set of fa cts in support of his claim [that] would entitle[] him to relief.” Fireman v. United States, 44 Fed. Cl. 528, 537 (1999) (quoting Ponder v. United States, 11 7 F.3d 549, 55 2-53 (Fed. Cir. 1997)).

II. The Court Has Jurisdiction Over Pl aintiffs’ Illegal Exaction Claim.

Under the Tucker Act, the Court can hear an y claim that is “founded either upon the Constitution, or any Act of Cong ress or any regulation of an ex ecutive department, or upon any express or implied contract with the Un ited States, or for liqui dated or unliquidated damages in cases not sounding in tort.” 28 U.S. C. § 1491. It is well established that under the Tucker Act, the Court can hear claims “made for recovery of monies that the government has required to be paid contrary to law.” Areolineas Argentinas v. United States, 77 F.3d 1564, 1572 (Fed. Cir. 1996) (def ining an illegal exaction claim). An illegal exaction claim may be maintained where “the plaintiff has paid money over to the6 Government, directly or in effect, and seeks re turn of all or part of that sum that was improperly paid, exacted, or ta ken from the claimant in cont ravention of the Constitution, a statute, or a regulation.” Id. at 1572-73 (internal quotations omitted). Jurisdiction to recover the exaction is provided when “the exaction is based on an asserted statutory power,” id. at 1573, and the statute invoked by the plaintiff must provide “either expressly or by ‘necessary implication,’ that ‘the remedy for its violation entails a return of money unlawfully exacted,’” Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005).

The Government contends that becaus e Reclamation could legally assess disproportionate additional annual mitigation and restoration paymen ts on Plaintiffs under Section 3407(d), the Court does not have jurisdiction over Plain tiffs’ case. See Def.’s Mot. to Dismiss at 13, 19-20 (“[P]laintiffs do not have a right to a proportional assessment; therefore, the statute does not afford them a remedy for the re turn of monies they were assessed in excess of their pr oportional share of the CVP repa yment.”). The Government’s

contention is incorrect. If all th e Government had to do to de feat jurisdiction over an illegal exaction claim was to simply a ssert that the exaction was lega l, this Court’s illegal exaction jurisdiction would be nullified. The Court’ s jurisdiction does not rest on whether the purported exaction was legal. Instead, the Court assumes for th e purposes of the motion to

dismiss that Reclamation’s assessment of th e additional annual mitigation and restoration payments was illegal, see Clapp v. United Stat es, 127 Ct. Cl. 505, 5 09, 117 F. Supp. 576, 578 (1954) (“In the discussion of the question of jurisdiction, we assume that there was no legal authority in the Maritime Administration to demand or receive th e $7,500.”), and asks what would be the explicit or implicit remedy fo r the Government’s violation of the statute, see Norman, 429 F.3d at 1095. Here, by necessary implica tion, the remedy would be a return of the payments that were assessed to CVP Power Customers in violation of Section 3407(d)’s proportionality provision.

Even though Section 3407(d) does not cont ain an express statement that the remedy for violating the statute’s prop ortionality provision is a return of the money paid over to the Government, the lack of express money- mandating language in the statute does not defeat Plaintiffs’ illegal exaction claim. See, e.g., Cyprus Amax Coal Co. v. United States, 205 F.3d 1369, 1373 (Fed. Cir. 2000) (Court had juri sdiction over an illegal exaction claim based upon the Export Clause of the Constitutio n because the language of the clause led

“to the ineluctable conclusion th at the clause provides a caus e of action with a monetary remedy.”). Otherwise, the Government coul d assess any fee or payment it wants from a plaintiff acting under the color of a statute that does not expr essly require compensation to the plaintiff for wrongful or illegal action by the Government, and the plaintiff would have no recourse for recouping the money overpa id. Overpayment claims are one of the quintessential illegal exaction claims, see, e.g ., Suwannee S. S. Co. v. United States, 150 Ct. Cl. 331, 335-37, 279 F.2d 874, 876-77 (1960) (the court held that requiring plaintiff to7 pay $20,000 to the Maritime Administration as a condition to be able to transfer two ships to a foreign registry was an illegal exaction ), and the Court has always had jurisdiction

under the Tucker Act to hear such claims, see Clapp, 127 Ct. Cl. at 513-14, 117 F. Supp. at 580-81 (finding jurisdiction over plaintiff’s illegal exaction claim to recover $7,500 paid

to the Maritime Administration as a condition for approving the sale of plaintiff’s vessel). Plaintiffs clearly meet the Norman standard to have their claims adjudicated by this Court.

III. Plaintiffs Properly Stated a Cl aim for an Illegal Exaction.

Plaintiffs also properly stated a claim for an illegal exaction to survive a motion to dismiss under Rule 12(b)(6). The facts presente d in the complaint alle ge that Plaintiffs paid money over to Reclamati on who acted under the guise of its Section 3407(d) authority to illegally assess disproportionate additiona l annual mitigation and restoration payments on Plaintiffs. See Pl.’s Compl., Ex. 3 (invoice from Western to NCPA). Instead of paying approximately 22-24 percent for the Restora tion Fund as is their proportion of the CVP Repayment Costs, Plaintiffs have been charged, on average, approximately 40 percent. Id. ¶ 55.

The Government argues that it is not requi red to maintain proportionality when it imposes the additional annual mitigation and restoration paym ents on CVP Power Customers. According to the Government, th e language in Section 3407(d)(2)(A) “to the greatest degree practicable” gives Reclama tion complete discretion to ignore the proportionality language in th e statute when necessary to collect the full $30 million for the additional annual mitigation and restora tion payments as appr opriated by Congress each year. Def.’s Mot. to Dism iss at 7-8. The appropriati ons acts do not gi ve Reclamation the discretion to deviate from Congress’s manda te that Reclamation collect the full $30 million from both water and power users fo r the additional annual mitigation and restoration payments. Id. at 18-19 (“Congre ss directs Reclamation ‘to assess and collect

the full amount of the additional and restoration payments authoriz ed by section 3407(d).’”) (emphasis added). Accordingly, because paym ents are capped for water users at $6.00 and $12.00 per acre-foot, Plaintiffs must make up the difference in order for Reclamation to comply with the a nnual appropriations acts. Id.

Here, whether Reclamation disregarded th e proportionality pr ovision in Section 3407(d) for the additiona l annual mitigation and restoration payments is an issue of fact. It is entirely plausible under the facts Plai ntiffs presented in their complaint that Reclamation violated Section 3407(d) by imposing a revenue-maximizing scheme on Plaintiffs, while ignoring proportionality alt ogether. Though the proportionality provision in Section 3407(d) app ears to give some flexibility to Re clamation in asse ssing the payment allocations for water and power users by stati ng that “all funds collected under this title,8 shall, to the greatest degree practicable , be assessed in the same proportion, measured over a ten-year rolling average, as water and powe r users’ respective allocations for repayment of the Central Valley Project,” this language does not necessarily give a carte blanche to the Government to ignore proportionality alt ogether. Such a readi ng of Section 3407(d) would ignore the word “shall” in the provis ion and render the proportionality limitation a nullity. Sharp Elecs. Corp. v. McHugh, 707 F. 3d 1367, 1373 (Fed. Cir. 2013) (“‘Shall’ is ‘mandatory’ language.”); Sharp v. United States, 580 F.3d 1234, 12 38 (Fed. Cir. 2009) (“We therefore reject its interpretation, whic h would violate the canon that we must ‘give effect, if possible, to every clause and word of a statute’ and should avoid rendering any of the statutory text meaningless or as mere surplusage.”).

The Court notes that it does not make a decision on whether Reclamation’s assessment of the additional annual mitigat ion and restoration pa yments constituted an illegal exaction under Section 34 07(d). All the Court has deci ded for the purposes of the

motion to dismiss is that the facts and Plaintiffs’ interpre tation of the statute in the complaint are plausible to suppor t their illegal exaction claim. Accordingly, Plaintiffs have properly stated a claim for an illegal exaction in their complaint.

Conclusion

For the foregoing reasons, the Government ’s motion to dismiss Plaintiffs’ complaint for lack of subject matter jurisdiction and for failure to state a clai m upon which relief can be granted is DENIED. Pursuant to Rule 12( a)(4)(A), Defendant shall file its answer to the complaint within 14 days, on or before July 13, 2015.

IT IS SO ORDERED.

s/ Thomas C. Wheeler

THOMAS C. WHEELER Judge