Opinion ID: 207966
Heading Depth: 1
Heading Rank: 11

Heading: Interpretation of the Applicable Articles

Text: 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 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 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 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, 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. 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. 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 acre-feet 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, 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.