The parties are unaware of any other case with which this case should be consolidated.       

g. Dispositive motions.  The parties anticipate that liability can be resolved on summary judgment pursuant to Rule 56, following a nine-month discovery period.

Plaintiffs’ statement:  As noted above in Sections A and B, plaintiffs suggest that any RCFC 12(b)(1) motion to dismiss which defendant may choose to file, challenging the jurisdiction of this Court, should be filed at the earliest possible time to avoid unnecessary waste of the Court’s and the parties’ resources.   

Defendant’s statement:  It is possible that defendant may file a RCFC 12(b)(1) motion seeking dismissal of certain plaintiffs after a period of discovery should the parties be unable to resolve the class certification and representational capacity issues with respect to plaintiffs’ breach of contract claims through informal discussions or through a motion by plaintiffs seeking class certification or setting forth the basis for their representational or third-party beneficiary standing.  Specifically, defendant may seek to dismiss the named individual plaintiffs should plaintiffs fail to establish their status as intended third party beneficiaries of the irrigation district plaintiff contracts with Reclamation.  In addition, to the extent that plaintiff Klamath Hills District Improvement Company is asserting a breach of contract claim, defendant may seek to dismiss that claim because Klamath Hills District Improvement Company does not have a contract with Reclamation.      

The parties anticipate filing motions for summary judgment pursuant to RCFC 56 on the question of liability for the breach of contract claims following a nine-month period of discovery.   At this preliminary stage, defendant has several potential grounds for a dispositive motion, including:

1.  A majority of the irrigation district contracts with Reclamation contain water shortage provisions that limit the liability of the United States for water shortages caused by drought or other causes.  See Revised Appendix to the Joint Preliminary Status Report at D2 - D11; see also Pls.’ Amended Compl. Ex. ( Mar. 24, 2003 ).  

2.  The contracts generally do not specify particular quantities of water to be delivered by Reclamation.  

3.  Under existing law, Reclamation is not liable to the plaintiffs for a reduction of water deliveries if those reductions are necessary to comply with legal obligations.   See Klamath Water Users Assoc. v. Patterson, 204 F.3d 1206, 1212-14, opinion amended on denial of rehearing, 203 F.3d 1175 (9th Cir. 2000), cert. denied, 531 U.S. 812 (2000); O’Neill v. United States, 50 F.3d 677, 689 (9^th Cir. 1995), cert. denied, 516 U.S. 1028 (1995); Kandra v. United States, 145 F. Supp. 2d 1192, 1199 (D. Ore. 2001).  

h. Relevant Factual and Legal Issues.  

            At this point the parties have not identified any material disputed factual issues concerning liability.  Specifically, the parties agree that:

1.  The irrigation district plaintiffs, with the exception of Klamath Hills District  

Improvement Company, have contracts with Reclamation for the delivery of Project water.  

            The parties have identified the following legal issues for resolution by this Court:  

1.  What is the scope and extent of Reclamation’s contractual obligations?

2.  Whether Reclamation breached its contracts with the irrigation districts.

3.  If there has been a breach, what measure of damages is owed to plaintiffs. 

            Plaintiffs’ statement.  Reclamation does not deliver water directly to Klamath Project water users.  Instead, it has entered into a series of contracts with plaintiff districts to accomplish that water delivery.  Although the contracts vary somewhat in their precise terms, the contracts generally obligate Reclamation to deliver (subject to availability) all water that the Klamath Project water users can beneficially use on their land.  As consideration for these water deliveries, the districts are obligated to pay Reclamation annually the entire cost of water storage and delivery.  Moreover, the districts have completed their payment to Reclamation of the entire capital cost of Klamath Project facilities, such as the dam, irrigation canals, tunnels, and pumps. 

            Prior to 2001, with minor exceptions in 1992 and 1994 (critically dry years), Reclamation had faithfully made these water deliveries to plaintiffs every year.  In 2001, Reclamation again proposed to deliver water in accordance with historical practice.  Reclamation’s operations plan for 2001, however, was found to jeopardize the endangered fish (suckers and salmon) in the government’s April 5, 2001 and April 6, 2001 biological opinions.  Reclamation complied with those biological opinions, refusing to deliver water to plaintiffs in accordance with its February 12, 2001 operations plan.  Reclamation’s February 12, 2001 operations plan describes the contract performance to which plaintiffs were entitled.  Defendant’s refusal to deliver water in accordance with the operations plan constituted a breach of their water delivery contracts, for which damages are due.

            The Supreme Court construed similar Reclamation water delivery contracts in Ickes v. Fox, 300 U.S. 82 (1937) holding that Reclamation could not unilaterally decrease its water deliveries to project water users, nor raise the price.  The Court noted that “[t]he government was and remained simply a carrier and distributor of the water, with the right to receive the sums stipulated in the contracts as reimbursement for the cost of construction and annual charges for operation and maintenance of the works.”   The Court ruled that twenty years of contract performance established Reclamation’s interpretation of the contract—that plaintiffs are entitled to delivery of all the water they can beneficially use, subject only to availability.  The Comptroller General, noted that the Klamath contracts are substantially similar to those at issue in Ickes.  Dec. of Comptroller General, No. B-125866, 1956 U.S. Comp. Gen LEXIS 3071 at *1, 10-11 (Sept. 4, 1956).

            Plaintiffs do not believe that the limitation of liability provision (which also differs from contract to contract, and which is entirely absent from some) bars recovery of breach damages where Upper Klamath Lake was full, and plenty of water was therefore available for delivery.  Moreover, to the extent that an Act of Congress makes contract performance illegal, the defense of supervening illegality is unavailable to defendant.  United States v. Winstar Corp., 518 U.S. 839, 883 (1996) (“[W]e must reject the suggestion that the Government may simply shift costs of legislation onto its contractual partners who are adversely affected by the change in the law, when the Government has assumed the risk of such change.”).

            As noted above, once liability is found, this Court will have to determine the proper measure of damages.  Plaintiffs believe this measure of damages is the consequential damage caused to the 1400 water users, while defendant has not yet come to a position on this issue.  Accordingly, at the time liability has been found, this Court may be required to determine whether the individual water users, individually or as a class, are necessary parties to this suit, or whether the district plaintiffs may recover their losses as a proper measure of damages without certifying the class.

            Finally, plaintiffs are aware that a few individual Klamath Project water users have indicated their intention to seek damages in another forum, and plaintiffs have assured defendant that they will not assert any damages claim on behalf of those individuals. 

            Defendant’s statement. 

            A.  Factual Background

Defendant incorporates by reference its statement of the Factual Background contained in the Joint Preliminary Status Report filed on February 8, 2002 at 14-18 and states further as follows:

The delivery of Project water is governed by contracts entered into between Reclamation and various individuals, irrigation districts and other entities organized under Oregon and California law (collectively referred to herein as the “Districts”).  See Klamath Project Historic Operation at 31-32, C-1 - C-2 (“The Klamath Project water users obtain their irrigation water supply from Project facilities pursuant to various contracts with Reclamation.”).^[1]   Each of the districts then supplies irrigation water to individual users within their boundaries.  All but one of the irrigation districts named as Plaintiffs in this case have contracts directly with Reclamation for the delivery of Project water.  See Pls’ Amended Complaint Exs. 1-14.  Klamath Hills District Improvement Company does not have a contract with the United States for delivery of Project Water.  None of the individual plaintiffs named in this case have specific contracts with the United States for delivery of Project water.

The contracts at issue are written in perpetuity, generally specify an acreage for which water is to be provided, and rely on beneficial use for the amount of water used rather than specifying an amount of water to be delivered.  In addition, many of the contracts provide that the water is to be delivered during the irrigation season, generally defined as a period between April and September.  To the extent that Plaintiffs suggest that the payment of money under the contracts is relevant to the question of whether Reclamation has breached its contracts with the irrigation district plaintiffs in this case, Defendant submits that the issue may be in dispute.  A majority of the contracts also contain water shortage provisions which limit the liability of the United States for water shortages under certain circumstances. See, e.g., Revised Appendix to the JPSR, Exs.  D2-D11; Pls’ Amended Compl. Ex. ( Mar. 24, 2003 ).

B.  Legal Issues

Defendant incorporates by reference the Legal Issues contained in the Joint Preliminary Status Report filed on February 8, 2002 at 18-19 and further states that at this early stage in the litigation, Defendant views issues 5, 6, and 7 from p. 19 of the JPSR filed on February 8, 2002 as potential issues of law with respect to Plaintiffs’ breach of contract claims.  As set forth in the February 8, 2002 JPSR, these issues are:

5.  Whether Plaintiffs have stated a claim for which relief can be granted.

6.  Whether the Plaintiffs’ contracts with the Bureau of Reclamation preclude liability against the United States for water shortages. 

7.  Whether Plaintiffs’ contract rights are contingent upon Defendant meeting the requirements of the ESA and its trust responsibility to Indian tribes.

            Defendant disputes plaintiffs’ reliance on the case of Ickes v. Fox, 300 U.S. 82 (1937). That case involved a different Reclamation project and different Reclamation contracts.   In addition, Defendant believes that many of the factual contentions contained in Plaintiffs’ statement are disputed and also disagrees with Plaintiffs’ interpretation of the other cases and documents relied on in their statement. 

            In addition, Defendant views the following as additional issues with respect to the breach of contract claims:

1.  Whether the irrigation district plaintiffs may bring their claims in a representative capacity, and if so, what is the scope of that capacity.

2. Whether the named individual plaintiffs are third party beneficiaries of the irrigation district plaintiffs’ contracts with Reclamation.

3. Whether this case should proceed as a class action and, if so, how should the class be defined, who are the proper class representatives, and should there be any subclasses.

The parties have been in discussions regarding the question of who the proper parties are to assert plaintiffs’ breach of contract claims, and how and when these questions should be resolved.  Thus far, the parties have been unable to resolve this issue.  While Defendant agrees that the irrigation district plaintiffs who are parties to contracts with Reclamation may bring the breach of contract claims set forth in Plaintiffs’ amended complaint, it is far from clear whether these irrigation district plaintiffs may bring their breach of contract claims on behalf of the water users within their districts or whether the individual plaintiffs may bring claims on their own behalf as intended third party beneficiaries.  For example, Plaintiffs have not demonstrated that the state statutes which purport to authorize the irrigation districts to maintain actions afford them representational standing to bring breach of contract claims.  Moreover, the case cited by Plaintiffs, H.F. Allen Orchards v. United States, 749 F.2d 1571 (Fed. Cir. 1984), does not support plaintiffs’ alleged intended third-party beneficiary status.  See Joint Report Responding to Court’s Order of March 26, 2003 at 18-19, 25.  

Defendant also believes that it may be necessary to conduct some discovery relating to the class certification/representative capacity issue.  Defendant would anticipate seeking information from Plaintiffs regarding whether any of the named irrigation districts have a charter, articles of incorporation or similar documents that define each district’s purpose and powers, whether written agreements/contracts or other evidence exist that define the relationship between each of the irrigation districts and the individual landowners and water users within that district, and whether the water users within each district have specifically authorized the districts to file claims on their behalf and whether that authorization is documented.

Defendant has also been notified that certain water users that receive water from the named irrigation district plaintiffs have not elected to pursue breach of contract claims through this lawsuit.  Therefore, Defendant seeks a resolution of this issue that takes into account the fact that not all water users within each district wish to be part of this lawsuit.    

i.  Settlement/Alternative Dispute Resolution.

The parties have discussed whether any method of alternative dispute resolution may be viable to address the breach of contract claims in this case.  At this preliminary stage of the case, the parties do not believe any of these methods are viable because the parties believe the question of liability on the breach of contract claims can be resolved through motions for summary judgment.

j.  Anticipate Proceeding to Trial/Expedited Trial.  At this time, the parties do not believe that a trial to determine the liability issue will be necessary.  As this time, neither party requests expedited trial scheduling.  

k.  Electronic Case Management.  At this time, there are no special issues regarding electronic case management needs. 

l.  Other information for the Court.  Counsel represent that the parties discussed the issues set forth in Paragraph 3 of Appendix A of the Rules of the Court of Federal Claims on September 2, 2003 September 3, 2003 , and September 15, 2003 .  Counsel for the parties previously exchanged exhibit and witness lists as well as the nature and location of any material evidence of which they are aware in connection with the takings claims and, at this time, neither party is aware of any additions or changes to the information previously exchanged.  Counsel have not exchanged specific information on damages computations because there have not been any computations made at this time.

Plaintiffs’ counsel certifies that he has discussed the expenses and time frame for this litigation with his clients.  Defendant certifies that it has discussed time frame and litigation costs with the client agencies involved in this case.  Both parties agree that there are many variables, which may affect the timing and costs for the conduct of this case, and have discussed such variables with their clients.

m.     Discovery Plan.

            The parties agree that a nine-month period will be necessary to complete discovery that is limited to the question of liability on the breach of contract claims.  Moreover, the parties further agree to conduct discovery on the issues of liability and proper party issues (class certification/representative capacity) simultaneously.  

            The parties propose the following discovery schedule: 

            1.  Initial Discovery Period on Proper Party Issue will close on January 30, 2004 .^[2]

            2.  Discovery on Liability will close on June 15, 2004 .

            With respect to Part 6 of this Court’s Special Procedures Order, the parties respectfully refer the court to the Revised Appendix to the Joint Preliminary Status Report filed with the Court on February 28, 2002 .  In addition, the parties refer the Court to the Exhibits to Plaintiffs’ Amended Complaint, which contain the contracts referenced in Plaintiffs’ Amended Complaint and discussed herein.

            Plaintiffs’ statement.   As noted above, plaintiffs believe that the district plaintiffs have standing to assert all breach of contract and damages claims on behalf of their water users.  However, in order to afford complete relief and to assure that all parties are before the Court, some individual plaintiffs are also named, suing on their own behalf and on behalf of the class of all Klamath Project water users. 

            Plaintiffs respectfully suggest that the standing of individual plaintiffs (as well as all similarly situated individual water users) is properly tested by a RCFC 12 (b)(1) motion, which defendant should file at the earliest opportunity.  This Court’s ruling on that motion may moot class action certification, making the motion to certify superfluous.  For example, should this Court hold either that the district plaintiffs have the right to recover damages for their water users, or should this Court hold that individual water users are not third party beneficiaries, class certification would be moot.  

            Since jurisdictional issues are generally addressed at the outset of the case, and since class certification motions are often deferred to a later point in the litigation, plaintiffs suggest that defendant’s RCFC 12(b)(1) motion should proceed a class certification motion with all of its panoply of factors and inquiries in addition to standing issues.  Accordingly, plaintiffs recommend that this Court order defendant to file any RCFC 12(b)(1) motion it may have on or before October 31, 2003 , and that the issue of class certification be postponed pending this Court’s ruling on that motion.  Plaintiffs do not object to defendant’s proposal to engage in discovery regarding the standing of plaintiffs, provided such discovery is conducted within the rules of this Court. 

            Defendant’s statement. If the parties are unable to reach agreement on the issue of class certification and representative capacity with respect to the breach of contract claims, defendant reiterates its request, as set forth in its Response to Plaintiffs’ Supplemental Filing (April 10, 2003), that plaintiffs be required to file an amended or supplemental motion for class certification that includes the basis for class certification of the breach of contract claims under RCFC 23.  Defendant further requests that once plaintiffs have set forth the basis upon which they assert the appropriateness of class certification or the basis of their alleged representative capacity, that defendant be allowed 90 days to conduct discovery on the issue of class certification/representative capacity.  Defendant requests that it have 30 days from the close of discovery on these issues within which to file its Response to Plaintiffs’ motion.   Because plaintiffs have yet to specify or establish in which capacity they bring their breach of contract claims, Defendant submits that plaintiffs’ motion should address these issues before Defendant files a RCFC 12(b)(1) motion.  As set forth above, this issue should be resolved prior to the issue of liability with respect to the breach of contract claims. 

Defendant additionally proposes the following schedule:

1.  Plaintiffs to file Motion for Class Certification                                    October 31, 2003

2.  Defendant to File Response to Motion for Class Cert.                      March 1, 2004

Respectfully submitted,  

________________________           

Roger J. Marzulla

Nancie G. Marzulla

Marzulla & Marzulla

1350 Connecticut Ave., N.W.

Suite 410

Washington , DC   20036

Tel: (202) 822-6760

Fax: (202) 822-6774

Counsel for Plaintiffs

THOMAS L. SANSONETTI

Assistant Attorney General

Environment & Natural Resources Division

________________________

KRISTINE S. TARDIFF

Attorney of Record for Defendant

JOANNA B. GOGER

United States Department of Justice

Environment & Natural Resources Division

General Litigation Section

P.O. Box 663

Ben Franklin Station

Washington , D.C.   20044-0663

Tel: (202) 305-0481

Fax: (202) 305-0506

REGINALD T. BLADES, JR.

Senior Trial Counsel

Commercial Litigation Branch

Civil Division

Department of Justice

Attn: Classification Unit

8^th Floor, 1100 L Street, N.W.

Washington , D.C.   20530

Tel:  (202) 514-7300

                                                                                    Fax:  (202) 307-0972

Dated: September 16, 2003