STOCKTON EAST WATER DISTRICT, Plaintiff, AND CENTRAL SAN JOAQUIN WATER CONSERVATION DISTRICT, Plaintiff-Appellant, AND SAN JOAQUIN COUNTY, STOCKTON CITY, AND CALIFORNIA WATER SERVICE COMPANY, Plaintiffs,
UNITED STATES, Defendant-Appellee
Appeal fro the United States Court of Federal Claims in No. 04-CV-0541, Judge Christine O.C. Miller.
ROGER J. MARZULLA, Marzulla Law, LLC, of Washington, DC, argued for plaintiff-appellant. With him on the brief was NANCIE G. MARZULLA.
DAVID A. HARRINGTON, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were STUART F. DELERY, Assistant Attorney General, BRYANT G. SNEE, Acting Director, and BARBARA E. THOMAS, Trial Attorney.
Before NEWMAN, PLAGER, and TARANTO, Circuit Judges.
Plager, Circuit Judge.
This is a breach of contract case against the United States, on appeal again from the United States Court of Federal Claims
(" trial court" ). Appellant Central San Joaquin Water Conservation District (" Central" ) seeks modification of the trial court's damages award, made by the trial court following our earlier remand. Stockton E. Water Dist. v. United States, 583 F.3d 1344 (Fed. Cir. 2009), reh'g en banc granted in part, aff'd, 638 F.3d 781.
In 1983, Central entered into a contract with the United States Bureau of Reclamation (" Reclamation" ) for an appropriation of water from the New Melones Reservoir within California's San Joaquin Valley. Upon enactment of the Central Valley Project Improvement Act (" CVPIA" ) in 1992, Reclamation made statements indicating that it would not be able to meet the quantity commitments in its contracts because of other demands for the water. In 1993, Central sued the United States (" Government" ) for breach of contract in federal district court, marking the beginning of a lengthy litigation that remains unresolved.
Subsequently, the case was transferred to the Court of Federal Claims for trial. As indicated, we earlier heard the breach of contract claims on appeal from the trial court and, determining contrary to the trial court's view that breaches had occurred in certain years, we reversed and remanded the proceedings to the trial court for a determination of damages. The trial court on remand awarded Central $149,950.00 in cost of cover damages, but denied any expectancy damages. Central timely appeals the denial of expectancy damages.
We conclude that the trial court erred by not properly considering the effect of Reclamation's announced breaches on the amount of water that Central may have expected to need to meet demand. This caused the trial court to discount Central's arguments regarding what would have happened in the non-breach world. Accordingly, we affirm the trial court's judgment granting cost of cover damages but vacate the trial court's judgment denying expectancy damages, and remand for further proceedings consistent with this opinion.
In 1983 Central, along with Stockton East, entered into contracts with Reclamation for an appropriation of water from the New Melones Reservoir within California's San Joaquin Valley. The Central contract was intended, following a ten-year buildup period, to make available to Central a maximum of 80,000 acre-feet and a minimum of 56,000 acre-feet of surface water per year from the New Melones Unit of the Central Valley Project (" CVP" ). Joint Appendix (" JA" ) 166-91. The water was to be used to support agricultural enterprise in the San Joaquin Valley. Under the contract, Central would submit a schedule each year indicating the amounts of water required monthly, with the first schedule to be submitted two months prior to the initial delivery of water. JA 176 (Article 4(a)).
As part of its preparations for accepting water from the New Melones Unit, Central sought to determine the type and location of distribution facilities it had to
construct by ascertaining the amounts of water the area's agricultural activities would use in the years ahead. Central retained international engineering firm CH2M Hill to assist in this determination. CH2M Hill held several meetings with the farmers, surveyed their lands, and obtained letters of intent signed by farmers.
CH2M Hill concluded that Central would use at least 50,000 acre-feet of New Melones water per year, which, because of the thirty percent conveyance loss during transit from the New Melones Dam, required over 70,000 acre-feet per year from the reservoir. JA 1300, 1311. Based on CH2M Hill's analysis, Central's board authorized the execution of bonds to build the needed infrastructure, at a cost of $7.4 million. JA 1312.
In May 1988, Reclamation announced the initial delivery of water. During the period from 1988-1992, however, no water was delivered to Stockton East and Central (the " Districts" ) because construction of the water conveyance systems was not yet completed. Stockton E. Water Dist., 109 Fed. Cl. at 472. Then, in 1992, Congress enacted the CVPIA, which imposed on Reclamation a new requirement to dedicate annually 800,000 acre-feet of water from the CVP for fish, wildlife, and habitat restoration needs. Id. at 472 n.11. In the spring of 1993, in a meeting with the Districts, Reclamation made it clear that " this prescription [under the CVPIA] would continue and in only the wettest years might [the Districts] see some water." Id. at 472.
Following this announcement, Central sued for injunctive and declaratory relief and damages in the U.S. District Court for the Eastern District of California. See Stockton E. Water Dist. v. United States, 101 Fed. Cl. 352, 354 (2011). The case eventually was transferred to the Court of Federal Claims and a trial on liability was held in 2006. See Stockton E. Water Dist. v. United States, 75 Fed. Cl. 321, 376 (2007).
Beginning in 1993, the amount of water made available to Central (and to Stockton East) by Reclamation varied significantly. Although in our earlier decision on appeal we specifically determined that breaches of the contract occurred in the years 1999 through 2004, a summary of what occurred prior to those years is helpful to understand the actions of the parties in the relevant time frame.
In 1993, the Districts requested a total of 20,000 acre-feet, with 10,000 allocated to each district. Stockton E. Water Dist., 109 Fed. Cl. at 472. Reclamation delivered no water under the contracts in 1993. Id. at 473.
In 1994, Central requested 25,000 acre-feet of water. In the meantime, Reclamation announced that it was forecasting a critically dry year for 1994, with an initial forecast providing a " zero water supply" for the Districts. See id. Ultimately, neither Stockton East nor Central received any water from New Melones in 1994, with Reclamation invoking the shortage provision of Article 9 of the 1983 contracts. Id.
Central initially requested 50,000 acre-feet of water in 1995. Id. at 473. In February of 1995, Reclamation announced that, ...