[00:00:10] Speaker 03:
Okay, the next argued case is number 17-24-31, stopped in East Water District against the United States.

[00:00:18] Speaker 03:
Mr. Marzullo.

[00:00:20] Speaker 02:
Roger Marzullo, appearing on behalf of Plaintiff Appellant, Central San Joaquin Water Conservation District.

[00:00:29] Speaker 02:
In the damages phase of this breach of contract case, Central has amply met its burden, which was to provide the trial court

[00:00:40] Speaker 02:
with sufficient evidence on which to make a reasonable approximation of damages.

[00:00:46] Speaker 02:
That evidence includes Reclamation's own water needs study on which the 40-year Central and Stockton East contracts were constructed.

[00:01:01] Speaker 02:
It includes the CH2M Hill engineering study which served as the basis for constructing

[00:01:10] Speaker 02:
Central's own multi-million dollar delivery system within the district.

[00:01:16] Speaker 02:
It includes the 95 firm commitment letters signed by farmers who utilize irrigation water within Central San Joaquin, committing to take approximately 53,000 acre feet of water per year.

[00:01:35] Speaker 02:
It includes the contract itself,

[00:01:39] Speaker 02:
which was negotiated extensively between Reclamation and Central and which provides a year-by-year statement of the amount of water that Reclamation was expected to provide and Central was expected to accept over the breach years.

[00:02:00] Speaker 02:
The evidence also includes the actual water deliveries that were made by Reclamation

[00:02:09] Speaker 02:
and utilized by Central during the breach years, the six breach years, 1999 through 2004.

[00:02:18] Speaker 02:
Those figures show that in the first of those three breach years, Reclamation made more water available.

[00:02:24] Speaker 02:
Central's farmers used 30,000 acre feet, roughly, and I'm rounding off, roughly 30,000 acre feet per year of water.

[00:02:33] Speaker 02:
That in the last three of the six breach years,

[00:02:38] Speaker 02:
Reclamation made available only roughly 10,000 acre-feet per year and that the farmers used all of that 10,000 acre-feet.

[00:02:49] Speaker 02:
Now the question arises, did the demand of Central's farmers drop to one-third of what it was in the first three breach years during the second three breach years so that it would coincide with

[00:03:08] Speaker 02:
the amount that reclamation made available, all of which Central took.

[00:03:12] Speaker 02:
Or alternatively, did Central's farmers take the 10,000 that was available and might they have taken the 30,000 that they took, 33,718 acre-feet that they took in the first breach year, which I might add was an above average precipitation year.

[00:03:35] Speaker 02:
versus the last three years when Reclamation could only provide 10,000 acre-feet because, guess what, it was a dry year and water was scarce.

[00:03:44] Speaker 02:
We also have the actual demands, the actual requests for water that Central provided to Reclamation in years when they anticipated that Reclamation would perform the contract.

[00:04:02] Speaker 02:
during the middle years of that time period, 94, 95, 96.

[00:04:08] Speaker 03:
But you're not arguing that the actual damages which were awarded were not the actual out-of-pocket losses.

[00:04:18] Speaker 03:
You're asking for the damages based on the contracts that were not fulfilled?

[00:04:25] Speaker 02:
Yes, that is correct, Your Honor.

[00:04:28] Speaker 02:
We did get a judgment for cost of cover damages

[00:04:31] Speaker 02:
for out-of-pocket expenditures, and that has been satisfied.

[00:04:35] Speaker 02:
These are expectancy damages.

[00:04:38] Speaker 04:
So... Mr. Marzolo.

[00:04:40] Speaker 04:
Yes, Your Honor.

[00:04:43] Speaker 04:
You and I have both been at this case for... Too long.

[00:04:48] Speaker 04:
Too long.

[00:04:49] Speaker 04:
It reminds me a little bit of a Dickens story that I always admired, how long these cases can be drawn out.

[00:04:58] Speaker 04:
Now,

[00:05:00] Speaker 04:
When I found myself preparing for court and realized this case was back again, I was taken aback.

[00:05:12] Speaker 04:
But let's see if we can put this phase of the case in context.

[00:05:19] Speaker 04:
It seems to me there are two kinds of questions that the judge had to deal with.

[00:05:27] Speaker 04:
The first question

[00:05:29] Speaker 04:
is, are you even eligible for expectancy damages?

[00:05:35] Speaker 04:
That is, are the facts of this case such that they even raise the question of availability of expectancy damages?

[00:05:48] Speaker 04:
Have you shown enough to be eligible to be considered for expectancy damages?

[00:05:55] Speaker 04:
And then the second question is, how much?

[00:05:58] Speaker 04:
Now, we know certainly as far as the how much goes that we're fairly flexible there because you just have to show plausible damages.

[00:06:10] Speaker 04:
You don't have to show them to any degree of precision.

[00:06:13] Speaker 04:
Everybody, I think, would grant that.

[00:06:16] Speaker 04:
But in terms of showing that you are really eligible, that the facts support expectancy damages,

[00:06:27] Speaker 04:
What do you understand to be the standard?

[00:06:29] Speaker 04:
Is that also just plausibility, or is that something more?

[00:06:35] Speaker 02:
I think, Your Honor, there is a measure of damages that was enunciated by Judge Miller in the first damages trial, and which has been applied ever since.

[00:06:48] Speaker 02:
And we quote that in our brief.

[00:06:50] Speaker 02:
And that measure of damages is essentially the market price of the water.

[00:06:56] Speaker 02:
minus the expenses Central would have incurred to obtain that water.

[00:07:02] Speaker 02:
And those expenses, in this case, include what Central would have had to pay to Reclamation in order to get the water in the first place.

[00:07:11] Speaker 02:
So Central saved the price of the water.

[00:07:15] Speaker 02:
They didn't have to pay Reclamation for it.

[00:07:18] Speaker 02:
That was the measure of damages that was adopted by Judge Miller, and the Court may recall,

[00:07:23] Speaker 02:
that Judge Miller went to the extent of taking expert testimony from Dr. Smith and from Dr. Sunding, the government's witness.

[00:07:33] Speaker 02:
She discredited the testimony of Dr. Sunding, credited the testimony of Dr. Smith, and determined a year-by-year market price of the water.

[00:07:49] Speaker 02:
So that is the measure that was adopted.

[00:07:53] Speaker 02:
The government raised that issue in the last appeal.

[00:07:57] Speaker 02:
This court did not affirm on the ground that the government is asserting now.

[00:08:04] Speaker 02:
And the court remanded the case to determine what the quantity was going to be so that it could be multiplied by the market price.

[00:08:15] Speaker 02:
There would have been no remand.

[00:08:17] Speaker 02:
If the government were correct, then we've just wasted the last couple of years and

[00:08:23] Speaker 02:
the Court's time on this case because if there were no damages, then it doesn't matter what the, what the farmer demand was or what Central would have requested.

[00:08:34] Speaker 02:
We think that was the, that Judge Miller adopted the correct measure of damages.

[00:08:39] Speaker 02:
Why?

[00:08:40] Speaker 02:
Because the contracting party here is not actually the farmers, is it?

[00:08:46] Speaker 02:
It is Central San Joaquin Water Conservation District, a State agency

[00:08:51] Speaker 02:
that was created for the sole purpose of protecting and of reinvigorating the San Joaquin Aquifer, which has been badly depleted, which is threatened with saline intrusion and ultimate destruction as a water source for the state of California.

[00:09:11] Speaker 01:
So, Mr. Marsolo, I'm sorry, I'm new to this case.

[00:09:15] Speaker 02:
Welcome.

[00:09:16] Speaker 01:
I must say,

[00:09:18] Speaker 01:
wondered why Judge Toronto's let off the hook and I was put on it when I signed this case.

[00:09:23] Speaker 01:
But I do have one totally unrelated question.

[00:09:26] Speaker 01:
I won't need up much of your time.

[00:09:27] Speaker 01:
What kind of fish?

[00:09:28] Speaker 01:
I'm curious.

[00:09:28] Speaker 01:
What kind of fish is it that caused all this?

[00:09:32] Speaker 02:
Actually, it's a fish, right?

[00:09:34] Speaker 01:
Isn't this a whole thing?

[00:09:35] Speaker 01:
The inability to provide the water is because there's some endangered fish.

[00:09:39] Speaker 01:
I feel like you and I have been down this road before, but last time it was about 10 years ago in Casitas.

[00:09:43] Speaker 02:
Yeah, that's different fish you're on.

[00:09:45] Speaker 01:
Yes, I hope it's not that steelhead trout.

[00:09:47] Speaker 01:
What kind of fish is it?

[00:09:48] Speaker 02:
This one is a species of salmon.

[00:09:51] Speaker 02:
There are actually two.

[00:09:52] Speaker 01:
Species of salmon and something... That's right, the lula salmon a lot, right?

[00:09:55] Speaker 01:
The lula species of salmon.

[00:09:57] Speaker 01:
Tiny, tiny little salmon.

[00:09:58] Speaker 02:
And then something called the... Oh, those are the delta smelt.

[00:10:01] Speaker 01:
Okay, I was just curious.

[00:10:02] Speaker 02:
That is they.

[00:10:04] Speaker 01:
But now let me ask you a real question, which is it's my understanding that

[00:10:12] Speaker 01:
In terms of loss profits, Central had a tough and sort of uphill battle, because other than its out of district sales, something called spot something something, I don't remember, that the in-district sales of water to farmer, that Central took a loss on every acre of water it sold.

[00:10:30] Speaker 01:
I may be stating the quantities wrong, and please forgive me, but the point nonetheless is that Central was on the losing end from a loss profit perspective of district sales

[00:10:40] Speaker 01:
It was only if you took the mark into account in assessing the market price, the out of district sales, that Central would be able to realize a profit on sales.

[00:10:48] Speaker 01:
So I think, as I understand it, the government's saying, look, even if they were going to realize a lost profit here, it would not be a profit.

[00:10:55] Speaker 01:
It would be you just saved money because you didn't lose money.

[00:11:00] Speaker 01:
Help me understand that.

[00:11:01] Speaker 02:
Certainly, Your Honor.

[00:11:02] Speaker 02:
First of all, I think the government has not correctly characterized Judge Miller's holding.

[00:11:09] Speaker 02:
And we address that.

[00:11:10] Speaker 02:
in our brief, Judge Miller did adopt as the measure of damages what I've identified.

[00:11:18] Speaker 02:
And it's absolutely true that as a state agency, Central doesn't make a profit.

[00:11:26] Speaker 02:
They're not in the business of selling water.

[00:11:28] Speaker 02:
They're not a commercial water sales entity.

[00:11:32] Speaker 02:
And if the government is right, then it seems to me it follows

[00:11:38] Speaker 02:
that any government entity has no breach of contract claim for these damages unless that government entity is reselling services at a profit.

[00:11:55] Speaker 02:
So if they're buying boots for the army, unless they're charging the soldiers more than the price of the boots, there is no damages claim that the government can bring.

[00:12:07] Speaker 02:
That's not the rule.

[00:12:08] Speaker 02:
The rule isn't that lost profits is the only measure of damages.

[00:12:12] Speaker 01:
What is the damage?

[00:12:13] Speaker 01:
I'm sorry, but I don't think I agree with you, Mr. Marzullo.

[00:12:16] Speaker 01:
I think you could still bring a breach of contract claim.

[00:12:18] Speaker 01:
You just can't get an expectancy claim under those circumstances.

[00:12:20] Speaker 02:
Yeah, correct.

[00:12:21] Speaker 02:
And I stand corrected, Your Honor.

[00:12:22] Speaker 02:
I think you're exactly right.

[00:12:24] Speaker 02:
But what is the damage caused here?

[00:12:27] Speaker 02:
The damage is to the aquifer itself, which is the sole purpose for the contract, the sole purpose for the existence of central.

[00:12:35] Speaker 02:
Central wasn't formed like some districts, there are irrigation districts in California and they are formed to provide water to their farmers and that's kind of their purpose.

[00:12:46] Speaker 02:
Central was formed for the purpose of protecting the aquifer and the method that Central adopted of doing that was to bring in surface water so the farmers would not pump their irrigation water out of the aquifer.

[00:13:01] Speaker 02:
Now, there are other ways of doing that.

[00:13:03] Speaker 02:
There are more expensive other ways of protecting that aquifer.

[00:13:05] Speaker 04:
Well, I grant you what you've just said.

[00:13:08] Speaker 04:
And I'm glad you said it, because I don't see any of that in the opinion of the Court of Federal Claims and in the arguments up to that point.

[00:13:19] Speaker 04:
You're exactly right.

[00:13:20] Speaker 04:
This whole purpose of this whole program was to restore the aquifer.

[00:13:28] Speaker 04:
and provide available surface water in lieu of having these farmers constantly pulling down the aquifer with their big pumps.

[00:13:41] Speaker 04:
Now, how does that go?

[00:13:45] Speaker 04:
What's the relevance of that issue?

[00:13:48] Speaker 04:
And how does that issue bear on the question of expectancy damages for the central district?

[00:13:54] Speaker 04:
Explain that part.

[00:13:56] Speaker 02:
Because Central is going to have to find some other way then of protecting this aquifer.

[00:14:02] Speaker 02:
If Reclamation is not going to provide this water, then Central will have to construct some sort of facility.

[00:14:12] Speaker 02:
And Stockton East, which was a co-plaintiff at the trial, they've since settled out and they're not in the case anymore.

[00:14:19] Speaker 02:
But Central East produced evidence of a percolation system

[00:14:24] Speaker 02:
that they had designed, and it was enormously more expensive than the per acre-foot value of this water, Your Honor.

[00:14:36] Speaker 02:
That is something Central could do if they had the resources, if the State were to give them the appropriations and so forth.

[00:14:44] Speaker 02:
They don't have that yet.

[00:14:46] Speaker 02:
But that's something that they're going to have to do or find some other way of pumping more water into the ground, because what we know

[00:14:54] Speaker 02:
happens is, Central's farmers use about 160,000 acre feet per year of water to irrigate their crops.

[00:15:03] Speaker 02:
That water either comes out of the ground or it comes from somewhere else as surface water.

[00:15:11] Speaker 02:
So to the extent the farmers continue to pump the water out and it is not recharged, we produced, we had the testimony back in the original trial of Tim Durbin, a hydrologist,

[00:15:23] Speaker 02:
who demonstrated how the water levels keep dropping.

[00:15:27] Speaker 02:
We had testimony in this last trial from a number of farmers about how their wells kept dropping and their cost of pumping water continued to go up, their electricity costs, their well drilling costs, and so forth and so on.

[00:15:42] Speaker 02:
That's going to have to be dealt with.

[00:15:44] Speaker 02:
And it's either dealt with by bringing in water from a reclamation project or

[00:15:50] Speaker 02:
by some other process, a much more expensive process of building a facility, pumping water into the ground.

[00:15:57] Speaker 02:
That's central's damages.

[00:16:01] Speaker 02:
That is the damage that results to the state agency in this case.

[00:16:07] Speaker 02:
And that's why lost profits is not the proper measure of damages.

[00:16:12] Speaker 02:
And that's why Judge Miller adopted the measure of damages that she did.

[00:16:16] Speaker 02:
Now, it's also entirely true, Your Honor,

[00:16:21] Speaker 04:
Wait a minute, we reversed Judge Miller, or we vacated and remanded her decision.

[00:16:27] Speaker 04:
Did we not?

[00:16:29] Speaker 02:
You did indeed, Your Honor.

[00:16:30] Speaker 02:
On other grounds, though.

[00:16:32] Speaker 02:
And as I say, if you had reversed her measure of damages, then you wouldn't have reversed, you would have affirmed the judgment of no damages.

[00:16:46] Speaker 02:
You wouldn't have reversed for trial.

[00:16:48] Speaker 04:
I misspoke.

[00:16:49] Speaker 04:
We didn't reverse.

[00:16:50] Speaker 04:
We sent it back because we felt her measure of damages did not adequately take into account the announcement by the government back in 1993 that we're not going to meet our contract obligations.

[00:17:10] Speaker 04:
And so she never took into account the impact of those announcements.

[00:17:16] Speaker 04:
on the demands that the farmers later made on the district.

[00:17:22] Speaker 04:
And we said, put that into the formula.

[00:17:26] Speaker 04:
Now, where does that leave us?

[00:17:29] Speaker 02:
Well, that's right.

[00:17:30] Speaker 02:
This Court reversed on expectancy damages and said it was wrong for Judge Miller to deny expectancy damages because of the point that you just stated.

[00:17:42] Speaker 03:
I don't think they went that far.

[00:17:45] Speaker 03:
on the remand to say it was wrong to deny expectancy damages.

[00:17:49] Speaker 03:
I read that more as a question of what was taken into account for the actual damages, which were then on remand awarded.

[00:17:59] Speaker 03:
Let's hear from the other side, and we'll save you rebuttal time.

[00:18:02] Speaker 02:
Thank you, Your Honor.

[00:18:08] Speaker 03:
Mr. McBurney.

[00:18:10] Speaker 00:
Good afternoon, Your Honors.

[00:18:11] Speaker 00:
May it please the Court

[00:18:12] Speaker 04:
Council, it's very easy to get lost in the weeds in this case of how many acre feet of water in what year we didn't get or whatever.

[00:18:23] Speaker 04:
Let me put a case to you, a hypothetical case to you, and have you help me a little bit on how we should think about it.

[00:18:30] Speaker 04:
Let's assume we have a shoe store with an established community, needs work boots.

[00:18:39] Speaker 04:
Everybody in the community needs work boots.

[00:18:42] Speaker 04:
And this shoe store normally sells work boots.

[00:18:45] Speaker 04:
And it buys its work boots from X company.

[00:18:48] Speaker 04:
And it has a contract with X company for a wide number of work boots in a particular year.

[00:18:56] Speaker 04:
And the company breaches.

[00:18:58] Speaker 04:
They won't provide the work boots.

[00:19:00] Speaker 04:
And the store can't sell the work boots.

[00:19:05] Speaker 04:
How do we go about developing the stores

[00:19:08] Speaker 04:
expectancy damages.

[00:19:10] Speaker 04:
Do we go out on the street and ask passersby, would you have bought work boots if they were available?

[00:19:20] Speaker 04:
Everybody would sort of say, well, it depends on the price and what kind of winter we're having.

[00:19:26] Speaker 04:
And besides which, I'm on my way somewhere else.

[00:19:29] Speaker 04:
Please don't bother me.

[00:19:31] Speaker 04:
How would we go about determining expectancy damages in that case?

[00:19:35] Speaker 00:
So in that scenario,

[00:19:37] Speaker 00:
What I would expect the plaintiffs to do would be to look at the plaintiff's business history and try to determine, based on some form of modeling, how many work boots could we really have expected to have been able to sell in the event we had those work boots available to sell.

[00:19:53] Speaker 04:
And then based on that modeling... And how would we do that modeling?

[00:19:56] Speaker 04:
Would we ask people?

[00:19:58] Speaker 04:
Or would we go back in history and find out how many work boots did you use to sell or

[00:20:05] Speaker 04:
But we can't be sure about that because there were some hot winters and some cold winters and work wasn't always, you know, and sometimes it was dry and sometimes it wasn't.

[00:20:18] Speaker 04:
Then what?

[00:20:19] Speaker 00:
Sure, Your Honor.

[00:20:20] Speaker 00:
So I think there's multiple ways to go about doing it.

[00:20:23] Speaker 00:
There's not one right answer.

[00:20:25] Speaker 00:
If there is prior sales data available that seems to be

[00:20:29] Speaker 00:
reasonably plausible and credible that that would reflect the future, then you would look at that.

[00:20:34] Speaker 04:
Is that what we would use as a standard which is reasonably plausible to anticipate for the future?

[00:20:41] Speaker 00:
That's right, Your Honor.

[00:20:42] Speaker 00:
Certainly the cases in this Court have held that you're never going to know for sure what the but-for world would have been.

[00:20:48] Speaker 00:
That world never happened.

[00:20:49] Speaker 00:
So you look for some form of modeling and data that provides reasonable certainty, something that's reasonably plausible, of what those damages would be.

[00:20:57] Speaker 00:
And once that model is presented, then

[00:20:59] Speaker 00:
You can have a debate about whether that gets you far enough or not, but you need reasonable certainty about what the damages would be.

[00:21:07] Speaker 00:
In this case, the Court of Federal Claims found secondarily that there wasn't enough to even have any reasonable certainty about what the amount of lost water sales would be, but more importantly, the Court held that there was not sufficient evidence that there were any lost water sales at all.

[00:21:24] Speaker 00:
And so the court didn't even necessarily need to reach that second question of if there were lost water sales, how do we quantify them?

[00:21:31] Speaker 00:
How much?

[00:21:32] Speaker 00:
How many lost water sales?

[00:21:34] Speaker 04:
You're pointing to the first problem that I mentioned to Mr. Murdoch.

[00:21:39] Speaker 04:
Did they go far enough to even show an entitlement to expectancy damages?

[00:21:43] Speaker 04:
That's right, Ron.

[00:21:45] Speaker 04:
But I have some problem with that, counsel, because, well, there's a couple of problems.

[00:21:50] Speaker 04:
One problem is how would you prove that

[00:21:54] Speaker 04:
Because among other things, you had these announcements back in 1993 by the federal government that it wasn't going to meet its contract requirements.

[00:22:06] Speaker 04:
There wasn't going to be any water.

[00:22:08] Speaker 04:
Keep pumping from the ground is what the federal government said.

[00:22:12] Speaker 04:
And so these farmers all said to themselves,

[00:22:19] Speaker 04:
the hell with you people, you know, we'll go hump from the ground and do something else or sign up with some other water company.

[00:22:26] Speaker 04:
And so they can't properly testify, oh, I would have taken so many acre feet because they have no idea what they would have done.

[00:22:37] Speaker 04:
And besides which, this is 2018 or 2017 and all that happened back in the dark ages, right?

[00:22:46] Speaker 04:
We don't even remember how dry it was back then.

[00:22:52] Speaker 04:
And how do we factor in what I think is what the whole program was about, which was to get the farmers off the wells and preserve the aquifer because the animals and the birds came through the flyways.

[00:23:14] Speaker 04:
They don't have pumps.

[00:23:16] Speaker 04:
They don't get their water that way.

[00:23:18] Speaker 04:
They can only find it if it's available.

[00:23:21] Speaker 04:
And if you have no surface water available, they have a real problem.

[00:23:27] Speaker 04:
So this whole thing was an environmental effort, right, as well as an economic problem.

[00:23:35] Speaker 04:
And the trials had seemed to focus only on the economics of it.

[00:23:41] Speaker 04:
How do we deal with that?

[00:23:42] Speaker 00:
So I think there's two questions there.

[00:23:44] Speaker 00:
Let me answer your first question first.

[00:23:46] Speaker 00:
The theory that you just articulated in terms of the farmers reacting to this announcement in 1993, that is the theory that this court sent this case back for the trial court to consider.

[00:23:57] Speaker 00:
That is the theory that Central at least attempted to advance at the trial.

[00:24:01] Speaker 00:
And that is the theory that the judge made detailed findings of facts about.

[00:24:06] Speaker 00:
And what the court concluded was looking at the evidence

[00:24:09] Speaker 00:
the evidence that was put forward simply did not bear that theory out.

[00:24:14] Speaker 00:
So let me give an example.

[00:24:15] Speaker 00:
It certainly could have been possible that when the farmers testified at this latest trial, the farmers consistently stated, well, we heard this announcement.

[00:24:24] Speaker 00:
At that point, we decided we wanted no part of this because of that announcement.

[00:24:29] Speaker 00:
What the trial court found, we believe correctly and certainly not clearly erroneously on this record, was that what the farmers actually testified to

[00:24:37] Speaker 00:
were a wide range of factors, most of which had nothing to do with Reclamation's performance.

[00:24:43] Speaker 00:
Some of which, some of which.

[00:24:45] Speaker 00:
A lot of which, I'll say a lot of which, had nothing to do with Reclamation's performance.

[00:24:49] Speaker 00:
The ones that did have to do with Reclamation's performance, the majority of those had to do with Reclamation's performance in ways that would have existed in the but for world, just as they did in the real world.

[00:25:01] Speaker 00:
For example, the fact that in 1994, Reclamation said there's going to be no water because we have a breach.

[00:25:07] Speaker 00:
Well, I'm sorry, because we have a drought.

[00:25:09] Speaker 00:
Well, this court has held that not providing water under Article 9C of the contract because of the drought was not a breach.

[00:25:16] Speaker 00:
So when we're looking at comparing the real world to the but for world, the but for world has the same scenario where there's no water in 1994 because of a drought.

[00:25:23] Speaker 00:
It has the same scenario where there's no water in 1993 because the contract didn't even require it.

[00:25:28] Speaker 00:
Despite the fact that farmers, according to the testimony, had been led to believe that there would be water in 1993.

[00:25:34] Speaker 00:
That wasn't required.

[00:25:35] Speaker 00:
there would have been no water in 1995 in the but for world because that was excused under the contract.

[00:25:40] Speaker 00:
And so what central needed to do to meet its burden of proof, if the facts would support it, and in this case, I don't think they would have under any scenario, but essential was going to meet that burden.

[00:25:51] Speaker 00:
It had to find some way of producing a model that separated out the events that would be equally in existence in a but for world from the events that would not specifically from the impact on the breaching announcement.

[00:26:04] Speaker 04:
What's the standard of proof for something like that?

[00:26:08] Speaker 04:
Is it what's plausible, or is it what can be scientifically developed?

[00:26:15] Speaker 00:
I think they're related.

[00:26:16] Speaker 00:
I mean, the legal standard is with reasonable certainty.

[00:26:19] Speaker 00:
Now, how you get to showing reasonable certainty, I think there's many ways to skin a cat, right?

[00:26:24] Speaker 00:
You could have had an expert report that took into account all of these other factors, such as drought, such as expenses, such as all of these things that the trial court found in its findings,

[00:26:34] Speaker 00:
were other factors that led farmers to buy less water than Central would have expected, you could have had a report that analyzed all of them.

[00:26:41] Speaker 00:
Now, I think part of what made it so difficult for Central in this case was that the farmer testimony that they were relying on just didn't bear that out.

[00:26:49] Speaker 00:
I mean, sure, some of the farmers talked about, we heard this announcement, we were angry about the fish law, that was upsetting.

[00:26:54] Speaker 00:
But the testimony was so overwhelming with regards to these other factors that the Court simply could not conclude that it was the breaching announcements

[00:27:04] Speaker 00:
that were in any way, shape, or form the cause for suppressed demand.

[00:27:08] Speaker 00:
And of course, if you take a step back, the trial court also found... How about if we disagree with that judgment call, then what?

[00:27:15] Speaker 00:
Well, so first of all, I think to reverse, the court would have to believe not only that the trial court was wrong, but that it was plain error.

[00:27:21] Speaker 00:
That it was clearly erroneous.

[00:27:23] Speaker 04:
I'm sorry?

[00:27:25] Speaker 04:
Not only that it was wrong, it was... That it was clear error.

[00:27:27] Speaker 00:
Because this would be reviewed under the clear error standard.

[00:27:29] Speaker 00:
But that's a fact issue.

[00:27:30] Speaker 00:
Right.

[00:27:30] Speaker 00:
It's a question of fact.

[00:27:32] Speaker 00:
Essentially, what this appeal is, is Central's disagreement with the way the trial court weighed the evidence.

[00:27:39] Speaker 00:
And it's worth noting that there have now been two damages trials in front of two different trial court judges.

[00:27:45] Speaker 00:
And both trial court judges have come to the same conclusion with regards to what this evidence is able to establish.

[00:27:51] Speaker 04:
They certainly don't have a good batting average in the Court of Federal Plains, do they?

[00:27:55] Speaker 00:
I had noticed that, Your Honor.

[00:27:57] Speaker 00:
I'm hoping it's going to get a little bit better after this one.

[00:28:01] Speaker 00:
But I think the findings of the fact here are very, very clear.

[00:28:03] Speaker 00:
And in this most recent trial, the Court certainly went to great lengths to address the very issue that this Court found was not adequately considered the first time.

[00:28:11] Speaker 00:
And the Court made detailed factual findings based not only on the testimony of the farmers, but as well on the.

[00:28:19] Speaker 04:
What about the, what about, Central is a State agency, what about the

[00:28:24] Speaker 04:
investment they made in all the infrastructure that they put in place, as indeed did Stockton, in anticipation of providing all this surface water that never got provided.

[00:28:41] Speaker 04:
Do they eat all those costs?

[00:28:43] Speaker 04:
Is that where we are?

[00:28:45] Speaker 00:
So I guess there's two issues there.

[00:28:47] Speaker 00:
Number one, to the extent there's not actually any lost water sales as a result of the breach, which is what the trial court has found,

[00:28:54] Speaker 00:
But of course they do.

[00:28:56] Speaker 00:
Putting that aside, and if we're going to talk about if there were lost water sales, what's the measure of damage?

[00:29:00] Speaker 00:
I think that's the question that Your Honor is getting at.

[00:29:03] Speaker 00:
The problem is that the approach Central took in the trial court was an approach based on recovering for each supposed lost water sale, recovering on the spot market price.

[00:29:14] Speaker 00:
And that has no relation whatsoever to any reasonable approximation of Central's damages.

[00:29:21] Speaker 04:
That's a separate question as to how to actually measure those damages.

[00:29:25] Speaker 04:
We never got to that.

[00:29:27] Speaker 04:
That's correct, Ron.

[00:29:28] Speaker 04:
Because the trial judge says they're not even entitled.

[00:29:32] Speaker 04:
That's correct, Ron.

[00:29:34] Speaker 04:
Much less what the measure of those damages is.

[00:29:38] Speaker 04:
That's a rather shocking conclusion after how many years of litigation that we've been involved in this case.

[00:29:45] Speaker 04:
But I'm concerned about the investments that the state made

[00:29:51] Speaker 04:
And I'm concerned about the impact on the constant drawdown of the aquifer that the government held out, the federal government held out was going to be addressed by this whole program.

[00:30:10] Speaker 04:
Does the federal government just get to walk away and say, bye, sorry, we thought the fish were more important, you guys forget it.

[00:30:20] Speaker 04:
Is that the end of the case?

[00:30:22] Speaker 00:
Well, the short answer would be yes, Your Honor, for two reasons.

[00:30:26] Speaker 00:
The first, and I do have to reemphasize what the trial court found, and we think it is certainly not clearly erroneous, we think this is what the evidence showed, that despite the government's breach, there were no lost water sales, which means you would have the same impact on the aquifer, even absent the breach, that you have in the real world.

[00:30:41] Speaker 00:
So that's number one.

[00:30:43] Speaker 00:
But even assuming that this court were to find that the trial court committed clear error in finding there were no lost water sales as a result of the government's breach, there is no damages theory that can provide for an economic recovery for plaintiffs because the only theory they've offered is completely untied to their economic harm.

[00:31:03] Speaker 00:
And let me draw a contrast here because we heard some discussion about the aquifer and Your Honor has talked about the water basin and whatnot.

[00:31:10] Speaker 00:
Originally, of course, there were two different plaintiffs in this case.

[00:31:12] Speaker 00:
There was Stockton East, who was no longer part of the case, and there were Central.

[00:31:16] Speaker 04:
In Stockton East's case... Just for a moment, sidebar.

[00:31:19] Speaker 00:
Sure.

[00:31:20] Speaker 04:
What happened to Stockton East?

[00:31:22] Speaker 04:
How did you get rid of them?

[00:31:24] Speaker 00:
Stockton East's claims were resolved, I believe, after the last remand.

[00:31:27] Speaker 00:
By what?

[00:31:28] Speaker 00:
After the last remand, before the last trial, their claims were resolved.

[00:31:31] Speaker 04:
They were resolved in the sense of... There was a settlement, I believe.

[00:31:36] Speaker 04:
There was a settlement.

[00:31:37] Speaker 04:
Right.

[00:31:38] Speaker 04:
the central didn't want to settle?

[00:31:40] Speaker 04:
That's my understanding.

[00:31:42] Speaker 03:
At least not enough, because we're here.

[00:31:44] Speaker 03:
Now that we've interrupted your train of thought, as I kept hearing your talk about the government's breach and the government's breach, the impression from the briefs is that the government's position was that when the contract said if there's a drought, we're off the hook, we can't give you water we don't have, that they never withheld from

[00:32:08] Speaker 03:
anyone any water that managed to some way or other to get into the reservoir and that there was no breach but that it was fully put off because the contract had said that if we don't have any water of course we can't provide it never mind all of these 50,000 acre feet and so on minimum that we've got in the contract and one way or another that that's

[00:32:37] Speaker 03:
What happened?

[00:32:38] Speaker 03:
Of course, it planted many other curious seeds in terms of what looks or can be made to look like a promise to the farmers.

[00:32:49] Speaker 03:
The worries are over.

[00:32:50] Speaker 03:
We're building this enormous reservoir and look at all of these thousands, tens of thousands of acre feet.

[00:32:57] Speaker 03:
Just tell us how much do you think you'll need so we can put in enough pumps?

[00:33:03] Speaker 03:
At the same time, the contract says if there's no water,

[00:33:06] Speaker 03:
You don't get any water.

[00:33:09] Speaker 03:
But now I hear you saying over and over the government's breach.

[00:33:13] Speaker 03:
And again, I thought your position was that there was no breach because we had this excuse, more than an excuse from the beginning.

[00:33:25] Speaker 03:
How can you put all of that together?

[00:33:27] Speaker 03:
What makes me wonder is how in the world the farmers in that valley managed to survive

[00:33:34] Speaker 03:
with this kind of yes and no, up and down, phony promises, with fail safe, never mind, we don't mean it, in the contract.

[00:33:45] Speaker 00:
So, and I see my time has expired, if I may respond.

[00:33:48] Speaker 03:
That's my big question about where we are.

[00:33:52] Speaker 00:
Sure.

[00:33:52] Speaker 00:
So, there's the pre-breach years, which is

[00:33:56] Speaker 00:
1993 through 1998, and there was no breach there, and that's what this court has previously found.

[00:34:02] Speaker 03:
Well, there are all sorts of promises that weren't fulfilled, but the real question is were they binding contractually?

[00:34:08] Speaker 00:
Right, and so with regards to the years at issue in this case now, 1999 through 2004, the government understands that this court has held that the government breached during those years.

[00:34:19] Speaker 00:
The issue that was remanded for the trial court to consider was, even though the government had not breached the contract by providing lower quantities of water in those earlier years, did the fact that the government announced in 1993, essentially you may not always get the water under the contract, did that cause a suppression of farmer demand during the years when the government did, in fact, breach?

[00:34:44] Speaker 03:
But there was no new contract, right?

[00:34:46] Speaker 03:
There was nothing new in writing with the farmers?

[00:34:49] Speaker 00:
With the exception of the interim agreement that operated for a couple of years before the breach years.

[00:34:55] Speaker 00:
That's right.

[00:34:55] Speaker 00:
This is all operating under one contract.

[00:34:58] Speaker 00:
So the question the trial court was looking at and that was understood to have been remanded was if the government had still not provided the full amounts of water during the pre-breach years when it had a legitimate contractual basis for not doing so, but had also never made an announcement in 1993 indicating that it might not provide full quantities of water

[00:35:19] Speaker 00:
even when there is not a contractual basis for not failing to provide that water.

[00:35:23] Speaker 00:
In that scenario, would farmer demand during the breach years have been higher than it actually was or higher than the amount of water that Reclamation actually made available?

[00:35:33] Speaker 03:
So which were the breach years that you're referring to?

[00:35:36] Speaker 00:
1999 to 2004, Your Honor.

[00:35:38] Speaker 03:
Okay.

[00:35:38] Speaker 00:
And what the trial court found in detailed findings was that, in fact, there was not sufficient evidence for central immediate burden of showing that demand would have been higher.

[00:35:47] Speaker 00:
And because of that, the court didn't even need to reach the second question, which for the reasons we set forth in our brief, we believe is also fatal, of how would you even quantify the loss on a monetary level if there were lost water sales?

[00:36:01] Speaker 00:
The trial court didn't need to get there because it found there were no lost water sales.

[00:36:05] Speaker 03:
Okay.

[00:36:08] Speaker 03:
Anymore questions for the government?

[00:36:10] Speaker 03:
No.

[00:36:11] Speaker 03:
Let's hear from Mr. Marzeller.

[00:36:13] Speaker 03:
Thank you, Your Honor.

[00:36:19] Speaker 02:
Just a couple of points.

[00:36:21] Speaker 02:
First of all, I think counsel misspoke when he said that the trial court found that there had been no lost water sales.

[00:36:29] Speaker 02:
This case is about the standard of proof required.

[00:36:33] Speaker 02:
The trial court found that the plaintiffs had failed to introduce sufficient evidence on which she could quantify the amount of water sales.

[00:36:43] Speaker 03:
Of actual damages rather than expectancy.

[00:36:46] Speaker 03:
I mean, we're still just talking about

[00:36:48] Speaker 03:
expectancies.

[00:36:50] Speaker 03:
I didn't see any words in the record that farmers had gone out of business or whatever because the surface water was not available.

[00:37:05] Speaker 03:
So I'm sympathetic to the trial judge saying, you just haven't said what was lost.

[00:37:13] Speaker 03:
You're just going back to, well, we might have had 50,000 acre feet.

[00:37:18] Speaker 02:
There was evidence, however, Your Honor, the farmers were not the contracting parties.

[00:37:25] Speaker 02:
So we did not introduce, we did not attempt to value damages based on the injury to the several hundred farmers within the district.

[00:37:38] Speaker 02:
So first of all, it's a level of damage.

[00:37:42] Speaker 02:
And the trial court, I want to underscore, did not make a finding

[00:37:46] Speaker 02:
that there were no lost water sales.

[00:37:48] Speaker 02:
In fact, she said the farmers were enthused about the contract originally, and she said that there probably was some decrease in the demand as a result of Reclamation's announcements, but that plaintiffs had failed to introduce sufficient evidence to quantify that demand.

[00:38:08] Speaker 02:
How much had it been reduced?

[00:38:10] Speaker 02:
Second, and to go to the Court's inquiry about how you deal with

[00:38:17] Speaker 02:
factual situations like this.

[00:38:20] Speaker 02:
I think there are two points.

[00:38:22] Speaker 02:
First of all, recall that the state of California granted Central certain tools that they could use to manipulate demand.

[00:38:31] Speaker 02:
Central imposes a groundwater extraction tax and has the ability to increase that tax if it so sees fit.

[00:38:39] Speaker 02:
If water were available from reclamation, Central could make it more expensive for farmers to pump water out of the ground

[00:38:46] Speaker 02:
and make it economically advantageous for them.

[00:38:50] Speaker 04:
There's some evidence in the record about the fact that they did that to pay for some bonds.

[00:38:57] Speaker 04:
Did those bonds ever get issued?

[00:39:00] Speaker 02:
They did indeed, Your Honor.

[00:39:02] Speaker 02:
And I think they're still being paid off.

[00:39:04] Speaker 02:
Those paid for that internal distribution system.

[00:39:07] Speaker 02:
And so the farmers are actually paying for those bonds as well.

[00:39:11] Speaker 02:
Central also has the ability to subsidize the cost of surface water.

[00:39:17] Speaker 02:
once again, to wean farmers away from groundwater and to get them to use surface water.

[00:39:23] Speaker 02:
Why didn't Central do that?

[00:39:25] Speaker 02:
Because Reclamation didn't make the water available.

[00:39:28] Speaker 02:
Second point that I think is worth noting, Your Honor, and we've cited the Locke versus United States and ACE reporters, both cases in which the United States entered into contracts, one with a typewriter repair company, taking us back to the old days, and one with a court reporting company,

[00:39:46] Speaker 02:
where they had, I guess, a favored panel that there were half a dozen of these companies that would get the business.

[00:39:53] Speaker 02:
And then the government reached as to the plaintiff, and the government said, yes, but you can't prove how much business you would have gotten from us.

[00:40:02] Speaker 02:
And the court said, that doesn't get you off the hook for damages.

[00:40:09] Speaker 04:
I'm sure you appreciate your pushing water uphill in this case with the decision by the trial judge, the specific factual findings of the trial judge.

[00:40:22] Speaker 04:
It doesn't give us a lot of room.

[00:40:25] Speaker 04:
Why couldn't, I'm sure you tried all you could to get a better factual case before the trial judge, but this wasn't there?

[00:40:36] Speaker 02:
I think the trial judge has all the facts there are, Your Honor.

[00:40:41] Speaker 02:
And I do... It's hard to reconstruct from 20 or 30 years ago.

[00:40:47] Speaker 02:
Well, it is.

[00:40:48] Speaker 02:
It is.

[00:40:48] Speaker 02:
Some of the farmers were no longer with us, and certainly memories had faded and evidence was gone.

[00:40:56] Speaker 02:
I will point out, however, Your Honor, that the government characterizes as findings of fact what are, in fact,

[00:41:05] Speaker 02:
the courts simply saying that evidence is not sufficient.

[00:41:10] Speaker 02:
So it isn't a finding of fact when the court says, when the trial court says, well, yes, I know that Central's demand, Central issued a demand in 1994, a drought year just like 2003 and 2004.

[00:41:27] Speaker 02:
Central's request in 1994 was for 40,000 acre feet.

[00:41:33] Speaker 02:
In 1995, it was for 50,000 acre feet.

[00:41:36] Speaker 02:
The court simply ignored those, said, ah, that doesn't prove anything.

[00:41:40] Speaker 02:
Well, why doesn't that prove demand?

[00:41:44] Speaker 02:
Why doesn't that prove what Central's request would have been in the breach years?

[00:41:50] Speaker 02:
This Court has no further questions.

[00:41:51] Speaker 02:
Okay.

[00:41:52] Speaker 02:
Thank you.

[00:41:52] Speaker 03:
Thank you both.

[00:41:53] Speaker 03:
The case is taken under submission.