CASES ADJUDGED
IN THE
SUPREME COURT OF THE UNITED STATES
AT
OCTOBER TERM, 2000
Syllabus
KANSASv. COLORADO
ON EXCEPTIONS TO REPORT OF SPECIAL MASTER
No. 105, Orig. Argued March 19, 200l-Decided June 11,2001
The Arkansas River rises in Colorado and flows through Kansas
and several other States before emptying into the Mississippi
River. In 1949, Congress approved the Arkansas River Compact
(Compact), which Colorado and Kansas negotiated, and which provided
in Article IV-D that,
inter alia, future development of the
river basin could not materially deplete the usable quantity or
availability to other users of the river's waters. In 1986, Kansas
filed a complaint alleging that Colorado had violated the Compact.
In his first report, the Special Master found that post-Compact
increases in groundwater well pumping in Colorado had materially
depleted the waters in violation of Article IV -D; in his second
report, he recommended that damages be awarded to Kansas; and in
his third report, he recommended that such damages be measured by
Kansas' losses attributable to Compact violations since 1950, be
paid in money not water, and include prejudgment interest from 1969
to the date of judgment. Colorado has filed four objections to the
third report, Kansas has filed one, and the United States submits
that all objections should be overruled.
Held:
1. The recommended damages award does not violate the Eleventh
Amendment. Thus, Colorado's first exception is overruled. Colorado
contends that the Amendment precludes damages based on losses
sustained by individual Kansas farmers, as the Report recommends.
Kansas has unquestionably made the required showing that it has a
direct interest of its own and is not merely seeking recovery for
the benefit of
2
Syllabus
individuals who are the real parties in interest.
Oklahoma ex
rel. Johnson v.
Cook, 304 U. S. 387, 396. This
is but one of several proceedings in which Kansas' own interest in
preventing upstream diversion of the river has justified the
exercise of this Court's original jurisdiction. Kansas has been in
full control of this litigation since its inception, and its right
to control the disposition of any recovery of damages is
unencumbered. The injury to individual farmers is but one component
of the formula adopted by the Special Master to quantify damages
here. When a State properly invokes this Court's original
jurisdiction, neither the measure of, nor the method for
calculating, damages can retrospectively negate that jurisdiction.
Nor would jurisdiction be affected by Kansas' post judgment
decision about whether to deposit the money recovered in its
general coffers or use the money to benefit those who were hurt by
the violation. Pp. 7-9.
2. The unliquidated nature of Kansas' money damages does not bar
an award of prejudgment interest. Thus, Colorado's second exception
is overruled. This Court has long recognized that the common-law
distinction between liquidated and unliquidated damages is unsound,
Funkhouser v. J.
B. Preston Co., 290 U. S. 163, 168, and
that a monetary award does not fully compensate for an injury
unless it includes an interest component, see,
e. g.,
Milwaukee v.
Cement Div., National Gypsum Co.,
515 U. S. 189, 195. The
Special Master acted properly in declining to follow this
long-repudiated common-law rule. Pp. 9-12.
3. The Special Master determined the appropriate rate for the
prejudgment interest award and determined that interest should
begin running in 1969. Colorado's third exception is overruled
insofar as it challenges the interest rates and sustained insofar
as it challenges the Special Master's recommendation that the
interest should begin to accrue in 1969. Kansas' exception that the
interest should begin to accrue in 1950 is overruled. Pp.
12-16.
(a) Because this Court has decided that Kansas could measure a
portion of its damages by individual farmers' losses, the interest
rates applicable to individuals in the relevant years, rather than
the lower rates available to States, may properly be used to
calculate damages. Pp.12-13.
(b) The Special Master concluded that interest should be awarded
according to fairness considerations rather than a rigid theory of
compensation for money withheld. Kansas' argument that this Court
has effectively foreclosed that equities-balancing approach has
some merit, but this Court cannot say that by 1949 the Court's case
law had developed sufficiently to put Colorado on notice that
prejudgment interest would automatically be awarded from the time
of injury for a Compact violation. Therefore, the Special Master
acted properly in analyzing
3
this case's facts and awarding only as much prejudgment interest
as was required by balancing the equities. The equities support an
award beginning on a date later than the date of first violation.
The factors the Special Master considered-that no one thought that
the pact was being violated in the early years after it was signed
and that a long interval passed between the original injuries and
these proceedings, as well as the dramatic impact of compounding
interest over many yearsfully justify his view that prejudgment
interest should not be awarded for any years before either party
was aware of the excessive pumping. Colorado suggests that
prejudgment interest should begin to accrue in 1985, the year the
complaint was filed, rather than 1969, when Colorado knew or should
have known that it was violating the Compact. Though the issue is
close, the equities favor the later date. In overruling Colorado's
exceptions to the second report, this Court held that Kansas was
not guilty of inexcusable delay in failing to complain more
promptly about the post-Compact pumping because the nature and
extent of the violations were unclear even years after the
violation became obvious. That conclusion is a double-edged sword.
Both States' interests would have been served had the claim been
advanced promptly after its basis became known, and it was clear
that once the proceedings started they would be complex and
protracted. Given the uncertainty over the damages' scope that
prevailed from 1968 and 1985 and the fact Kansas had the power to
begin the process by which those damages would be quantified,
Colorado's request that the Court deny prejudgment interest for
that time is reasonable. Pp. 13-16.
4. The Special Master properly determined the value of the crop
losses attributable to Compact violations. Thus, Colorado's fourth
exception is overruled. Kansas and Colorado disagreed as to how
much additional crop yield would have been produced with the
missing water. Kansas' experts relied upon the hypothesis of a
generally linear relationship between water available for use and
increased crop yields. Colorado, whose own expert recanted an
alternative proposal for calculating damages, attempts to poke
holes in Kansas' methodology through a speculative application of
economic theory. That attack is unpersuasive, given Colorado's
inability to mount an effective challenge to Kansas' experts on
their own terms and its complete failure to provide a plausible
alternative estimate of crop damage. Pp. 16-20.
Colorado's exceptions sustained in part and overruled in part;
Kansas' exception overruled; and case remanded.
STEVENS, J., delivered the opinion of the Court, Parts I, IV,
and V of which were unanimous, and Parts II and III of which were
joined by REHNQUIST, C. J., and KENNEDY, SOUTER, GINSBURG, and
BREYER,
4
JJ. O'CONNOR, J., filed an opinion concurring in part and
dissenting in part, in which SCALIA and THOMAS, JJ., joined,
post, p. 20.
John B. Draper, Special Assistant Attorney General of
Kansas, argued the cause for plaintiff. With him on the briefs were
Carla J.
Stovall, Attorney General,
John W
Campbell, Chief Deputy Attorney General,
John M.
Cassidy, Assistant Attorney General,
Leland E. Rolfs,
Special Assistant Attorney General, and
Andrew S.
Montgomery.
Jeffrey P. Minear argued the cause for intervenor United States.
With him on the briefs were Solicitor General Waxman, Assistant
Attorney General Schiffer, Deputy Solicitor General Kneedler, and
Patricia Weiss.
David W Robbins, Special Assistant Attorney General of
Colorado, argued the cause for defendant. With him on the briefs
were
Ken Salazar, Attorney General,
Carol D. Angel,
Senior Assistant Attorney General, and
Dennis M. Montgomery,
Special Assistant Attorney General.
JUSTICE STEVENS delivered the opinion of the Court.
The Arkansas River rises in the mountains of Colorado just east
of the Continental Divide, descends for about 280 miles to the
Kansas border, then flows through that State, Oklahoma, and
Arkansas and empties into the Mississippi River. On May 20, 1901,
Kansas first invoked this Court's original jurisdiction to seek a
remedy for Colorado's diversion of water from the Arkansas River.
See
Kansas v.
Colorado, 185 U. S. 125, 126 (1902)
(statement of case). In opinions written during the past century,
most recently in
Kansas v.
Colorado, 514 U. S. 673, 675-678
(1995), we have described the history and the importance of the
river. For present purposes it suffices to note that two of those
cases,
Kansas v.
Colorado, 206 U. S. 46 (1907), and
Colorado v.
Kansas, 320 U. S. 383 (1943), led
to the negotiation of the Arkansas River Compact (Compact), an
agreement between Kansas and Colorado that in turn was approved by
Congress in 1949. See 63 Stat. 145. The case before us today
in-
5
volves a claim by Kansas for damages based on Colorado's
violations of that Compact.
The Compact was designed to "[s]ettle existing disputes and
remove causes of future controversy" between the two States and
their citizens concerning waters of the Arkansas River and to
"[e]quitably divide and apportion" those waters and the benefits
arising from construction and operation of the federal project
known as the "John Martin Reservoir." Arkansas River Compact, Art.
I, reprinted in App. to Brief for Kansas A-1, A-2. Article IV-D of
the Compact provides:
"This Compact is not intended to impede or prevent future
beneficial development of the Arkansas River basin in Colorado and
Kansas by Federal or State agencies, by private enterprise, or by
combinations thereof, which may involve construction of dams,
reservoir, and other works for the purpose of water utilization and
control, as well as the improved or prolonged functioning of
existing works: Provided, that the waters of the Arkansas River, as
defined in Article III, shall not be materially depleted in usable
quantity or availability for use to the water users in Colorado and
Kansas under this Compact by such future development or
construction." Id., at A-5.
It is the proviso to that paragraph that is of special relevance
to this case.
In 1986, we granted Kansas leave to file a complaint alleging
three violations of the Compact by Colorado. See 514 U. S., at
679-680. After taking evidence in the liability phase of the
proceeding, Special Master Arthur L. Littleworth filed his first
report, in which he recommended that two of the claims be denied,
but that the Court find that post-Compact increases in groundwater
well pumping in Colorado had materially depleted the waters of the
river in violation of Article IV-D. See id., at 680. We
overruled
6
Colorado's exceptions to that recommendation, including an
argument that Kansas was guilty of laches.
Id., at 687-689.
We remanded the case to the Special Master to determine an
appropriate remedy for the violations of Article IV-D.
Id.,
at 694.
After further proceedings the Special Master filed a second
report recommending an award of damages. Colorado filed exceptions
to that report, arguing that the Eleventh Amendment barred an award
based on losses incurred by Kansas citizens, and that the report
improperly recommended the recovery of prejudgment interest on an
unliquidated claim. We overruled those exceptions without prejudice
to their renewal after the Special Master made a more specific
recommendation for a remedy. 522 U. S. 1073 (1998). He did so in
his third report, and we are now confronted with exceptions filed
by both States.
In the third report, the Special Master recommends that damages
be measured by Kansas' losses, rather than Colorado's profits,
attributable to Compact violations after 1950; that the damages be
paid in money rather than water; and that the damages should
include prejudgment interest from 1969 to the date of judgment.
Colorado has filed four objections to the report. It contends (1)
that the recommended award of damages would violate the Eleventh
Amendment to the United States Constitution; (2) that the damages
award should not include prejudgment interest; (3) that the amount
of interest awarded is excessive; and (4) that the Special Master
improperly credited flawed expert testimony, with the result that
Kansas' crop production losses were improperly calculated. On the
other hand, Kansas has filed an objection submitting that
prejudgment interest should be paid from 1950, rather than 1969.
The United States, which intervened because of its interest in the
operation of flood control projects in Colorado, submits that both
States' objections should be overruled.
7
I
We have decided that a State may recover monetary damages from
another State in an original action, without running afoul of the
Eleventh AmendmenU See,
e. g.,
Texas v.
New
Mexico, 482 U. S.
124, 130 (1987) ("The Court has recognized the propriety of
money judgments against a State in an original action, and
specifically in a case involving a compact. In proper original
actions, the Eleventh Amendment is no barrier, for by its terms, it
applies only to suits by citizens against a State" (citations
omitted)); see also
Maryland v.
Louisiana, 451 U. S. 725, 745, n. 21
(1981); South Dakota v.
North Carolina, 192 U. S. 286, 317321
(1904). Colorado contends, however, that the Eleventh Amendment
precludes any such recovery based on losses sustained by individual
water users in Kansas.
It is firmly established, and undisputed in this litigation,
that the text of the Eleventh Amendment would bar a direct action
against Colorado by citizens of Kansas. Moreover, we have several
times held that a State may not invoke our original jurisdiction
when it is merely acting as an agent or trustee for one or more of
its citizens. For example, in
New Hampshire v.
Louisiana, 108
U. S. 76 (1883), we refused to assume jurisdiction over an
action to recover payment on defaulted bonds that had been formally
assigned to the state plaintiffs but remained beneficially owned by
private individuals. And, in
North Dakota v.
Minnesota, 263
U. S. 365 (1923), we held that, while the plaintiff State could
obtain an injunction against the improper operation of Minnesota's
drainage ditches, the Eleventh Amendment precluded an award of
damages based on injuries to individual farmers, where the damages
claim was financed by
1 That Amendment provides: "The Judicial power of the United
States shall not be construed to extend to any suit in law or
equity, commenced or prosecuted against one of the United States by
Citizens of another State, or by Citizens or Subjects of any
Foreign State."
8
contributions from the farmers and the State had committed to
dividing any recovery among the farmers "in proportion to the
amount of [their] loss."
Id., at 375.
Those cases make it clear that a "State is not permitted to
enter a controversy as a nominal party in order to forward the
claims of individual citizens."
Maryland v.
Louisiana, 451 U. S., at 737; see also
New Hampshire
v.
Louisiana, 108 U. S., at 89 (Eleventh Amendment applies
and acts to bar jurisdiction where "the State and the
attorney-general are only nominal actors in the proceeding"). The
"governing principle" is that in order to invoke our original
jurisdiction, "the State must show a direct interest of its own and
not merely seek recovery for the benefit of individuals who are the
real parties in interest."
Oklahoma ex rel. Johnson v.
Cook, 304 U.
S. 387, 396 (1938).
Kansas has unquestionably made such a showing. Indeed, the
present proceeding is but one of several in which Kansas' own
interest in preventing upstream diversions from the Arkansas River
has justified an exercise of our original jurisdiction. In
Cook we even offered as an example of proper original
jurisdiction one of the prior original suits between Kansas and
Colorado, see
id., at 393-394 (citing
Kansas v.
Colorado, 206
U. S. 46 (1907)), and in
Texas v.
New Mexico we
held that enforcement of an interstate water compact by means of a
recovery of money damages can be within a State's proper pursuit of
the "general public interest" in an original action, 482 U. S., at
132, n. 7.
Moreover, the record in this case plainly discloses that the
State of Kansas has been in full control of this litigation since
its inception. Its right to control the disposition of any recovery
of damages is entirely unencumbered. The injury to individual
farmers is but one component of the formula adopted by the Special
Master to quantify the damages caused by Colorado's violation of
its contractual obligations. In short, there is simply nothing in
the record to suggest that the State of Kansas is merely a "nominal
party" to this
9
litigation or that the individual farmers are "the real parties
in interest."
When a State properly invokes our jurisdiction to seek redress
for a wrong perpetrated against it by a sister State, neither the
measure of damages that we ultimately determine to be proper nor
our method for calculating those damages can retrospectively negate
our jurisdiction. Nor would our jurisdiction to order a damages
remedy be affected by Kansas' post judgment decisions concerning
the use of the money recovered from Colorado. As we have previously
recognized, it is the State's prerogative either to deposit the
proceeds of any judgment in "the general coffers of the State" or
to use them to "benefit those who were hurt."
Ibid.
We overrule Colorado's first exception.
II
Colorado next excepts to the Special Master's conclusion that
the damages award should include prejudgment interest despite the
fact that Kansas' claim is unliquidated.2 At one point in time, the
fact that the claim was unliquidated would have been of substantial
importance. As a general matter, early common-law cases drew a
distinction between liquidated and unliquidated claims and refused
to allow interest on the latter. See,
e. g., Comment,
Prejudgment Interest:
2 Though final damages have not yet been calculated, the
importance of this issue is illustrated by breaking down the
damages claimed by Kansas. Of $62,369,173 in damages so claimed,
$9,218,305 represents direct and indirect losses in actual dollars
when the damage occurred. Of the remaining $53,150,868, about $12
million constitutes an adjustment for inflation (a type of interest
that Colorado concedes is appropriate) while the remaining amount
(approximately $41 million) represents additional interest intended
to compensate for lost investment opportunities. Third Report of
Special Master 87-88 (hereinafter Third Report). The magnitude of
prejudgment interest ultimately awarded in this case will, of
course, turn on the date from which interest accrues. See Part
III-B,
infra.
10
Survey and Suggestion, 77 Nw. U. L. Rev. 192, 196, and n. 26
(1982) (discussing history and collecting sources). This rule seems
to have rested upon a belief that there was something inherently
unfair about requiring debtors to pay interest when they were
unable to halt its accrual by handing over to their creditors a
fixed and unassailable amount. See,
e. g., id., at 196.
This common-law distinction has long since lost its hold on the
legal imagination. Beginning in the early part of the last century,
numerous courts and commentators have rejected the distinction for
failing to acknowledge the compensatory nature of interest awards.3
This Court allied itself with the evolving consensus in 1933, when
we expressed the opinion that the distinction between cases of
liquidated and unliquidated damages "is not a sound one."
Funkhouser v. J.
B. Preston Co., 290 U. S. 163, 168
(1933). The analysis supporting that conclusion gave no doubt as to
our reasoning:
"Whether the case is of the one class or the other, the injured
party has suffered a loss which may be regarded as not fully
compensated if he is confined to the amount found to be recoverable
as of the time of breach and nothing is added for the delay in
obtaining the award of damages."
Ibid. Our cases since 1933
have consistently acknowledged that a monetary award does not fully
compensate for an injury unless it includes an interest component.
See,
e. g.,
Milwaukee v.
Cement Div., National
Gypsum Co., 515
U. S. 189, 195 (1995) ("The essential rationale for awarding
pre-
3 For sources from the early part of the century criticizing,
qualifying, or rejecting the distinction, see,
e. g.,
Faber v.
New York, 222 N. Y. 255, 262, 118 N. E. 609,
610-611 (1918);
Bernhard v.
Rochester German Ins.
Co., 79 Conn. 388, 398, 65 A. 134, 138 (1906); Restatement of
Contracts § 337, p. 542 (1932); C. McCormick, Law of Damages § 51,
p. 210 (1935); 1 T. Sedgwick, Measure of Damages § 315 (9th ed.
1912); cf. 3 S. Williston, Law of Contracts § 1413, p. 2508 (1920)
("The disinclination to allow interest on claim of uncertain amount
seems based on practice rather than theoretical grounds"). For a
thorough modern treatment of the issue, see 1 D. Dobbs, Law of
Remedies § 3.6(3) (2d ed. 1993).
11
judgment interest is to ensure that an injured party is fully
compensated for its loss");
West Virginia v.
United
States, 479 U. S.
305, 310-311, n. 2 (1987);
General Motors Corp. v.
Devex Corp., 461 U. S. 648, 655-656,
n. 10 (1983).
Relying on our cases, the Special Master "concluded that the
unliquidated nature of Kansas' money damages does not, in and of
itself, bar an award of prejudgment interest." Second Report, § XV,
reprinted in App. to Third Report 43. In reaching that conclusion,
the Special Master was fully cognizant of both the displaced
common-law rule and the subsequent doctrinal evolution. In
addition, he gave careful consideration to equitable considerations
that might mitigate against an award of interest, concluding that
"considerations of fairness,"
Board of Comm'rs of Jackson
Cty. v.
United States, 308 U. S. 343, 352
(1939), supported the award of at least some prejudgment interest
in this case.
We find no fault in the Special Master's analysis of either our
prior cases or the equities of this matter. While we will deal with
the amount of prejudgment interest below, to answer Colorado's
second objection it is sufficient to conclude that the Special
Master was correct in determining that the unliquidated nature of
the damages does not preclude an award of prejudgment
interest.4
4JU8TICE O'CONNOR argues that the state of the law was
insufficiently evolved by 1949 for Colorado to have had notice that
the courts might award prejudgment interest if it violated its
obligations under the Compact. See
post, at 21-25 (opinion
concurring in part and dissenting in part). Though the law was
indeed in flux at that time, this Court had already made it clear
that it put no stock in the traditional common-law prohibition, see
Funkhouser v. J.
B. Preston Co., 290 U. S. 163, 168
(1933), and had stated explicitly that such interest may accrue
when "considerations of fairness" demand it, see
Board of
Comm'rs of Jackson Cty. v.
United States, 308 U. S. 343, 352
(1939). The contemporary Restatement of Contracts was in accord.
See Restatement of Contracts § 337(b), at 542 ("Where the contract
that is broken [is not for a set or easily ascertainable amount of
money], interest may be allowed in the discretion of the court, if
justice requires it, on the amount that would have been just
compensation if it had been paid when performance was
12
Colorado's second exception is overruled.
III
Colorado's third exception takes issue with both the rate of
interest adopted by the Special Master and the date from which he
recommended that interest begin to accrue. As to the second of
these two concerns, Colorado submits that, if any prejudgment
interest is to be awarded, it should begin to accrue in 1985 (when
Kansas filed its complaint in this action), rather than in 1969
(when, the Special Master concluded, Colorado knew or should have
known that it was violating the Compact). On the other hand, Kansas
has entered an exception, arguing that the accrual of interest
should begin in 1950. We first address the rate question, then the
timing issue.
A
The Special Master credited the testimony of Kansas' three
experts who calculated the interest rates that they thought
necessary to provide full compensation for the damages caused by
Colorado's violations of the Compact in the years since 1950. As a
result of inflation and changing market conditions those rates
varied from year to year. In their calculation of the damages
suffered by Kansas farmers, the experts used the interest rates
that were applicable to individuals in the relevant years rather
than the (lower) rates available to States.
due"). Under those circumstances, we think it is clear that, in
1949, an informed contracting party would not have concluded that
an agreement's silence on the issue deprived a reviewing court of
the authority to award compensatory interest if the party willfully
violated its contractual obligations. Moreover, under JUSTICE
O'CONNOR'S reasoning, States who entered into interstate compacts
before 1987, see
post, at 23, would retain a perpetual
incentive to breach their contractual obligations and reap the
benefits of such a breach with the full knowledge that the courts
lack the authority to order a fully compensatory remedy.
13
Colorado argues that the lower rates should have been used
because it is the State, rather than the individual farmers, that
is maintaining the action and will receive any award of damages.
But if, as we have already decided, see Part I,
supra, it is
permissible for the State to measure a portion of its damages by
losses suffered by individual farmers, it necessarily follows that
the courts are free to utilize whatever interest rate will most
accurately measure those losses. The money in question in this
portion of the damages award is revenue that would-but for
Colorado's actions-have been earned by individual farmers. Thus,
the Special Master correctly concluded that the economic
consequences of Colorado's breach could best be remedied by an
interest award that mirrors the cost of any additional borrowing
the farmers may have been forced to undertake in order to
compensate for lost revenue.
B
Although the Special Master rejected Colorado's submission that
there is a categorical bar to the award of prejudgment interest on
unliquidated claims, he concluded that such interest should not "be
awarded according to [any] rigid theory of compensation for money
withheld," but rather should respond to "'considerations of
fairness.'" Third Report 97 (quoting
Jackson Cty., 308 U.
S., at 352). Kansas argues that our decisions subsequent to
Jackson County have effectively foreclosed the
equities-balancing approach that the Special Master adopted. There
is some merit to Kansas' position. See
National Gypsum Co.,
515 U. S., at 193 (affirming a decision of the Court of Appeals
that had read our cases as "disapproving of a 'balancing of the
equities' as a method of deciding whether to allow prejudgment
interest").
However, despite the clear direction indicated by some of our
earlier opinions, we cannot say that by 1949 our case law had
developed sufficiently to put Colorado on notice
14
that, upon a violation of the Compact, we would automatically
award prejudgment interest from the time of injury. Given the state
of the law at that time, Colorado may well have believed that we
would balance the equities in order to achieve a just and equitable
remedy, rather than automatically imposing prejudgment interest in
order to achieve full compensation. See
Jackson Cty., 308 U.
S., at 352 (prejudgment interest award limited by "considerations
of fairness");
Miller v.
Robertson, 266 U. S. 243, 258 (1924)
("[W]hen necessary in order to arrive at fair compensation, the
court in the exercise of a sound discretion may include interest or
its equivalent as an element of damages" on unliquidated claims);
Restatement of Contracts § 337, p. 542 (1932) (prejudgment interest
on unliquidated claims "may be allowed in the discretion of the
court, if justice requires it"). While we are confident that, when
it signed the Compact, Colorado was on notice that it might be
subject to prejudgment interest if such interest was necessary to
fashion an equitable remedy, we are unable to conclude with
sufficient certainty that Colorado was on notice that such interest
would be imposed as a matter of course. We, therefore, believe that
the Special Master acted properly in carefully analyzing the facts
of the case and in only awarding as much prejudgment interest as
was required by a balancing of the equities.
We also agree with the Special Master that the equities in this
case do not support an award of prejudgment interest from the date
of the first violation of the Compact, but rather favor an award
beginning on a later date. In reaching this conclusion, the Special
Master appropriately considered several factors. In particular, he
relied on the fact that in the early years after the Compact was
signed, no one had any thought that the pact was being violated.
Third Report 106. In addition, he considered the long interval that
passed between the original injuries and these proceedings, as well
as the dramatic impact of compounding interest over many years.
Id., at 99-101; see also n. 3,
supra.
15
In its exception, Kansas argues that the Special Master's
reasoning would be appropriate if damages were being awarded as a
form of punishment, but does not justify a refusal to provide full
compensation to an injured party. Moreover, Kansas argues, a rule
that rewards ignorance might discourage diligence in making sure
that there is full compliance with the terms of the Compact.
Kansas' argument is consistent with a "rigid theory of compensation
for money withheld," but, for the reasons discussed above, we are
persuaded that the Special Master correctly declined to adopt such
a theory. The equitable considerations identified by the Special
Master fully justify his view that in this case it would be
inappropriate to award prejudgment interest for any years before
either party was aware of the excessive pumping in Colorado.
In its third exception, Colorado argues that, if prejudgment
interest is to be awarded at all, the equities are best balanced by
limiting such interest to the time after the complaint was filed,
rather than the time after which Colorado knew or should have known
that it was violating the Compact. Specifically, Colorado suggests
that prejudgment interest should begin to accrue in 1985 rather
than 1969. The choice between the two dates is surely debatable; it
is a matter over which reasonable people can-and do-disagree. After
examining the equities for ourselves, however, a majority of the
Court has decided that the later date is the more appropriate.5
5 JUSTICE O'CONNOR, JUSTICE SCALIA, and JUSTICE THOMAS would not
allow any prejudgment interest. See
post, at 20. JUSTICE
KENNEDY and THE CHIEF JUSTICE are of the opinion that prejudgment
interest should run from the date of the filing of the complaint.
JUSTICE SOUTER, JUSTICE GINSBURG, JUSTICE BREYER, and the author of
this opinion agree with the Special Master's view that interest
should run from the time when Colorado knew or should have known
that it was violating the Compact. In order to produce a majority
for a judgment, the four Justices who agree with the Special Master
have voted to endorse the position expressed in the text.
16
When we overruled Colorado's objections to the Special Master's
first report, we held that Kansas was not guilty of inexcusable
delay in failing to complain more promptly about post-Compact well
pumping. 514 U. S., at 687-689. In saying that the delay was not
inexcusable, we recognized that the nature and extent of Colorado's
violations continued to be unclear even in the years after which it
became obvious that the Compact was being violated.
Id., at
688-689. That conclusion is something of a two-edged sword,
however. While Kansas' delay was understandable given the amorphous
nature of its claims, there is no doubt that the interests of both
States would have been served if the claim had been advanced
promptly after its basis became known. Once it became obvious that
a violation of the Compact had occurred, it was equally clear that
the proceedings necessary to evaluate the significance of the
violations would be complex and protracted. Despite the diligence
of the parties and the Special Master, over 15 years have elapsed
since the complaint was filed. Given the uncertainty over the scope
of damages that prevailed during the period between 1968 and 1985
and the fact that it was uniquely in Kansas' power to begin the
process by which those damages would be quantified, Colorado's
request that we deny prejudgment interest for that period is
reasonable.
For these reasons, we overrule Kansas' exception. We also
overrule Colorado's third exception insofar as it challenges the
interest rates recommended by the Special Master, but we sustain
that objection insofar as it challenges the award of interest for
the years prior to 1985.
IV
Colorado's final objection challenges the Special Master's
determination of the value of the crop losses attributable to the
Compact violations, the largest component of Kansas' damages claim.
The Special Master accomplished the calculation by estimating the
amount of farmland affected by
17
Colorado's violations, the crops planted on that farmland, the
price of those crops, and the difference in yield between what the
affected land would have produced with the additional water and
what the land actually produced with the water it received.
The parties were in agreement concerning most of the facts
bearing on the Special Master's calculation. They agreed that water
was in short supply in the affected area each year, 178 Tr.
127-128; they agreed on the amount of the shortage that resulted
from Colorado's violations, ibid.; and they generally agreed on
which crops were planted on the affected farmland as well as the
prices of those crops in the relevant years. See Third Report
46.
The only issue on which the parties disagreed was the exact
effect of the diverted water on the crop yields for the farmland in
question. On that score, both Kansas and Colorado accepted the
general notion that "[u]p to the point where crops no longer can
make use of additional water, more water produces more crop yield."
Id., at 47. But they parted ways on the question of
precisely how much additional yield would have been produced with
the missing water.6 Kansas' experts relied upon the hypothesis of a
generally linear relationship between water available for
6 As the Special Master noted, "Colorado experts did not
dispute, in general, the linear relationship between [water usage]
and crop yield .... However, they were of the view that the
particular linear crop yield coefficients used by Kansas were not
sufficiently reliable to determine the increase in yields that
would have occurred if there had been no depletions of headgate
deliveries to the [affected] lands." Third Report 47. Colorado
suggests that Kansas' model, based as it is upon academic studies,
does not adequately account for reductions in crop yield from such
realworld conditions as "weather, disease, and pests." Brief for
Colorado 44, n. 12. But, as the Special Master correctly noted,
Kansas' experts reduced the predicted crop yield by 25% in order to
account for such possibilities. Third Report 51 ("The 25% reduction
was calculated to adjust the controlled experimental data to
'realistic long-term type conditions' in western Kansas, including
high temperatures, winds, insects, and other stressful
conditions").
18
use and increased crop yields. With figures drawn from a number
of studies, Professor Norman Whittlesey, Kansas' principal expert,7
developed quantitative estimates of the lost yield, per unit of
water, for the various crops grown on the affected farmland.
Although Colorado's expert initially attempted to propose his own
model, he ultimately abandoned his position when confronted with
flaws in his data. 197 Tr. 44-46.
Its own expert having recanted his alternative proposal for
calculating the effects of the diverted water on crop yield,
Colorado attempts to poke holes in Kansas' methodology through a
speculative application of abstract economic theory. Kansas'
numbers (for crop losses due to diverted water) cannot be correct,
Colorado argues, because if they were, it would have been
economically profitable for the affected farmers to drill wells and
obtain water from underground sources rather than suffer the
reduced yield from the shortage of surface water. Brief for
Colorado 41-49. Because Kansas farmers did not install wells,
Colorado concludes, we can know that the diverted water was not as
valuable as Kansas' experts claim.
The Special Master did not question Colorado's assertion that
digging wells would, in retrospect, actually have been profitable
for Kansas farmers, but he declined to employ Colorado's argument
as a basis for rejecting Kansas' expert testimony on the extent of
crop losses. His thoughtful analysis is worth quoting in full:
"Given the hindsight of present day economists, it might have
been profitable for everyone to drill supplemental wells ....
However, there are many reasons why this may not have been done,
and the failure to drill wells does not by itself indicate that
Kansas'
7Professor Whittlesey served for 20 years as a full professor
and agricultural economist at Washington State University. His
publications, many of which concern the kind of issues presented by
this case, fill 14 pages on his curriculum vitae. See Kan. Exh.
891.
19
estimate of crop losses is too high. The favorable economics of
drilling wells may not have been understood at the time. Quality
information regarding costs and returns was not readily available.
[211 Tr.] 31. Some farmers, for reasons of age or otherwise, may
not have wanted to go into long-term debt. Some farmers may not
have had the available capital, or the credit to borrow. Many
farmers were 'cash poor.' Id. at 32. Some farmers may have
been averse to risk. Some farmers may have been tenants, and the
landlord may not have been willing to undertake the necessary
investment. Some farms may have been small in terms of total
acreage, or the acreage spread out over space, so that it was not
feasible or practical to consider a well investment. [208 Tr.]
37-39. Capital for well investments, with three to ten year
repayment periods, was less available than for long-term
investments. [211 Tr.] 32." Third Report 60-61.
We agree with the Special Master that accepting Colorado's
argument requires a good deal of speculation, not only about the
comparative advantages of wells as opposed to irrigation, but also
about the ability of the farmers fully to understand or to
implement different choices without the benefit of expert
hindsight. Given Colorado's inability to mount an effective
challenge to Kansas' experts on their own terms and its complete
failure to provide a plausible alternative estimate of the crop
damage that resulted from its violations of the Compact, we
conclude that its attack on Kansas' conclusions is
unpersuasive.8
8We also agree with the Special Master's decision to disregard
the Colorado expert's comparison of the numbers produced by Kansas'
model with numbers drawn from the literature on the various crops
planted on the affected farmland. As Colorado admits, see Brief for
Colorado 46, the water values in the literature were not based on
"a 'short-short run' situation, that is, an intra-seasonal
transaction in which no capital costs were involved, and only
additional harvesting and irrigation costs would
20
Opinion of O'CONNOR, J.
Colorado's fourth exception is overruled.
V
We remand the case to the Special Master for preparation of a
final judgment consistent with this opinion.
It is so ordered.
JUSTICE O'CONNOR, with whom JUSTICE SCALIA and JUSTICE THOMAS
join, concurring in part and dissenting in part.
I agree with the Court's disposition of this case as to
Colorado's first and fourth exceptions to the Special Master's
Third Report, concerning the award and determination of damages. I
therefore join Parts I, IV, and V of the Court's opinion. I do not
concur in Parts II and III of the Court's opinion because I believe
that the award of prejudgment interest to Kansas, coming over half
a century after the Arkansas River Compact's (hereinafter Compact)
negotiation and approval, is clearly improper under our
precedents.
We are dealing with an interstate compact apportioning the flow
of a river between two States. A compact is a contract. It
represents a bargained-for exchange between its signatories and
"remains a legal document that must be construed and applied in
accordance with its terms."
Texas v.
New Mexico,
482 U. S. 124,
128 (1987); see also
Petty v.
Tennessee-Missouri Bridge
Comm'n, 359 U. S.
275, 285 (1959) (Frankfurter, J., dissenting) ("A Compact is,
after all, a contract"). It is a fundamental tenet of contract law
that parties to a contract are deemed to have contracted with
reference to principles of law existing at the time the contract
was made. See,
e. g., Norfolk &
Western R. Co.
v.
be required." Third Report 63. Because the circumstances in
Kansas involved short-short run situations, and because such
short-short run situations generally involve higher values for
water, values derived from other contexts are of limited use in
evaluating Kansas' model. See ibid.
21
Train Dispatchers, 499 U. S. 117, 129-130
(1991);
Farmers and Merchants Bank of Monroe v.
Federal
Reserve Bank of Richmond, 262 U. S. 649, 660
(1923); see generally 11 Williston on Contracts § 30:19 (4th ed.
1999). The basic question before the Court is thus one of "the fair
intendment of the contract itself."
Virginia v.
West
Virginia, 238 U.
S. 202, 233 (1915). Specifically, the question is whether, at
the time the Compact was negotiated and approved, Colorado and
Kansas could fairly be said to have intended, or at least to have
expected or assumed, that Colorado might be exposing itself to
liability for prejudgment interest in the event of the Compact's
breach. Cf. id., at 232-236 (awarding interest to Virginia in a
suit against West Virginia for breach of a contract to assume "an
equitable proportion" of Virginia's interest-bearing public debt
upon finding that "there is no escape from the conclusion that
there was a contract duty on the part of West Virginia to provide
for accruing interest as a part of the equitable proportion
assumed").
I fail to see how Colorado and Kansas could have contemplated
that prejudgment interest would be awarded. The "venerable ...
rule" at common law was that prejudgment interest was unavailable
on claims for unliquidated or, even more significantly,
unascertainable damages.
Milwaukee v.
Cement Div.,
National Gypsum Co., 515 U. S. 189, 197
(1995). Contrary to the Court's suggestion, see
ante, at
9-11, 13-14, that rule had not been abandoned by the period between
1943 and 1949, the years of the Compact's negotiation and ultimate
approval by Congress. By that time, the state of the law in general
regarding awards of prejudgment interest for unliquidated claims
was uncertain at best, as the Court itself recognizes. See
ante, at 9-11, and n. 3; cf.
ante, at 13-14; see also
Funkhouser v. J.
B. Preston Co., 290 U. S. 163, 168 (1933)
(noting "the numerous, and not harmonious, decisions upon the
allowance of interest in the case of unliquidated claims," and that
"the rule with respect to unliquidated claims has been in
evolution"). To be sure, we had by
22
Opinion of O'CONNOR, J.
then, along with other courts, criticized the common law rule
that prejudgment interest was recoverable on claims for liquidated,
but not for unliquidated, damages. See
ibid. But in the
absence of a statute providing for such interest, many courts,
including our own, still denied and would continue to deny
prejudgment interest on claims for unliquidated and unascertainable
damages in a great many, and probably most, circumstances. See,
e. g., Board of Comm'rs of Jackson Cty. v.
United
States, 308 U. S.
343, 353 (1939);
Blau v.
Lehman, 368 U. S. 403, 414
(1962);
Lineman v.
Schmid, 32 Cal. 2d 204, 211, 195
P. 2d 408, 412 (1948) (Although "there is authority to the effect
that the distinction formerly existing between liquidated and
unliquidated demands is practically obliterated, ... further
reading ... discloses, with citation of many cases, that the
general rule is almost uniformly adhered to, namely, that interest
is not allowable where the damages depend upon no fixed standard
and cannot be made certain except by accord, verdict or decree");
D. Dobbs, Remedies § 3.5, p. 165 (1973) ("Most courts, in the
absence of a statute to the contrary, would not award interest on
unliquidated pecuniary claims, the amount of which could not be
ascertained or computed, even in theory, without a trial"); see
generally C. McCormick, Law of Damages § 51, p. 210 (1935)
(explaining evolution of rule in America); see also 1 D. Dobbs, Law
of Remedies § 3.6(1), p. 336 (2d ed. 1993) ("The most significant
limitation on the recovery of prejudgment interest is the general
rule that, apart from statute, prejudgment interest is not
recoverable on claims that are neither liquidated as a dollar sum
nor ascertainable by fixed standards" (footnotes omitted)).
Awards of such interest on claims for unliquidated and
unascertainable damages for breach of a contract appear to have
been rarer still. See,
e. g., Williams v.
Idaho Potato
Starch Co., 73 Idaho 13,24,245 P. 2d 1045, 1051-1052 (1952);
Meyer v.
Strom, 37 Wash. 2d 818, 829-830, 226 P. 2d
218, 224
(1951); Lineman v.
Schmid, supra, at
207-213, 195 P. 2d, at
23
410-413; see also 3 Williston on Contracts § 1413, p. 2508
(1920) ("Interest is not generally allowed ... where market rates
or prices furnish no definite or exact test of the amount due"
(footnote omitted)); 1 T. Sedgwick, Measure of Damages § 312, p.614
(9th ed. 1912) ("Generally speaking, no interest can be recovered
for breach of a contract, where the damages are in their nature
unliquidated, until the amount is ascertained" (footnote omitted)).
In fact, at the time, they were not allowed in either Colorado or
Kansas. See,
e. g., Clark v.
Giacomini, 85 Colo. 530,
536-537, 277 P. 306, 308 (1929);
Denver Horse Imp. Co. v.
Schafer, 58 Colo. 376, 390, 147 P. 367, 372 (1915);
Roe v.
Snattinger, 91 Kan. 567, 568, 138 P. 581, 582
(1914);
Evans v.
Moseley, 84 Kan. 322, 332-333, 114
P. 374, 378 (1911).
Finally, and most important to this case, an award of
prejudgment interest on unliquidated and unascertainable damages
for breach of an interstate compact was unheard of at the time of
the Compact's negotiation and approval. Unlike cases involving
bonds or other instruments of credit, see,
e. g., Virginia
v.
West Virginia, supra, at 232-236;
South Dakota v.
North Carolina, 192 U. S. 286, 317-321
(1904), monetary damages in cases of this sort, involving the
apportionment of water between States, are notoriously difficult to
ascertain. Indeed, despite 15 years of litigation over the Compact,
and resort to a great deal of data, expert testimony, complicated
methodologies, and sophisticated analyses on the subject, the final
value of Kansas' damages still has yet to be determined. See
ante, at 9, n. 2; see also Third Report §§ III to X
(detailing and analyzing the numerous variables and data elements
necessary to arrive at a determination of Kansas' damages). It thus
is not surprising that, until 1987, we had never even suggested
that monetary damages could be recovered from a State as a remedy
for its violation of an interstate compact apportioning the flow of
an interstate stream. And when we first allowed such damages in
Texas v.
New Mexico, 482 U. S. 124 (1987),
we
24
Opinion of O'CONNOR, J.
did so partially at the behest of New Mexico, the breaching
State. See id., at 129-132. How, then, can one say that, at the
time the Compact was negotiated and approved, its signatories could
fairly be said to have intended, or at least could reasonably be
said to have expected or assumed, that Kansas might recover
prejudgment interest on damages caused by Colorado's breach? The
necessary predicate to such a recovery was neither recognized nor
even contemplated by this Court or, apparently, by the state
parties to original actions of this sort, until some 40 years
thence.
In light of this history, it seems inescapable that any
participant in the drafting and negotiation of the Compact would,
if asked at the time, have reacted with marked surprise to the
notion that the Compact rendered its signatories liable for an
award of prejudgment interest such as that sanctioned by the Court
today. As both the Compact itself and the parties' post-Compact
course of dealing make clear, the "fair intendment" of the Compact
very probably was simply for the in-kind recovery of water as a
remedy for its breach. The Compact says nothing about the
availability of prejudgment interest on money damages as part of
any remedy or, for that matter, about the availability of money
damages as a remedy in the first instance. It contemplates the
delivery of water from Colorado to Kansas, pure and simple. See
Arkansas River Compact, reprinted in App. to Brief for Kansas A-l.
When Kansas filed its complaint in this matter, "it sought only a
decree commanding Colorado 'to deliver the waters of the Arkansas
River in accordance with the provisions of the Arkansas River
Compact.'" Third Report § XI, at 98. Cf.
Colorado v.
Kansas, 320 U.
S. 383, 391 (1943) (discussing Kansas' prayer for relief in the
form of "an apportionment in second feet or acre feet"). Not until
our decision in
Texas v.
New Mexico, supra, did
Kansas amend its complaint to include a claim for monetary damages.
See Third Report § XI, at 98. Neither Kansas nor Colorado appears
ever to have anticipated or assumed, much
25
less expected, that the Compact might result in a monetary award
of prejudgment interest over half a century after its signing.
The Court ignores all of this in awarding prejudgment interest
to Kansas, seizing instead upon the compensatory rationale behind
the criticism of the common law rule and awards of prejudgment
interest on unliquidated claims for damages in general. See
ante, at 10-11. I do not dispute that awards of interest are
compensatory in nature or that, as a general matter, "a monetary
award does not fully compensate for an injury unless it includes an
interest component."
Ante, at 10; see also
National
Gypsum Co., 515 U. S., at 195, n. 7. But, as the Court itself
recognizes, see
ante, at 11, our precedents make clear that,
at least today and in the absence of a governing statute, awards of
prejudgment interest on unliquidated claims for damages are
governed not by any "rigid theory of compensation for money
withheld," but rather by "considerations of fairness."
Blau,
368 U. S., at 414 (internal quotation marks and citation omitted);
see,
e. g., General Motors Corp. v.
Devex Corp.,
461 U. S. 648,
651-653, and n. 5 (1983);
Funkhouser, 290 U. S., at 168169.
This is especially so where, as here, we are dealing with suits by
one governmental body against another. See
West Virginia v.
United States, 479 U. S. 305, 309-312
(1987);
Board of Comm'rs of Jackson Cty., 308 U. S., at
349-353.
There is nothing fair about awarding prejudgment interest as a
remedy for the Compact's breach when all available evidence
suggests that the signatories to the Compact neither intended nor
contemplated such an unconventional remedy. Many compacts between
States are old; suits involving compacts concerning water rights
are late in starting and are invariably long pending; and, because
statutes of limitation or the doctrine of laches is rarely
available to preclude the steady buildup of prejudgment interest,
the amount of such interest can become quite large, as Kansas'
claim for approximately $41 million illustrates. See
ante,
at 9, n. 2. One
26
Opinion of O'CONNOR, J.
would think that, particularly in such circumstances, even the
most rudimentary conception of fairness would dictate that the
Court ought not to interpret a contract between two States as
exposing one of them to liability under a novel legal principle
some 50 years later without some indication that the States might
have contemplated such exposure in conjunction with the contractual
rights and duties expressed in their compact. Contrary to the
Court's apparent belief, see
ante, at 11-12, n. 4, nothing
about such a contextualized historical approach would create an
across-the-board incentive for the continued breach of interstate
compacts entered into before 1987, especially given the prospect of
large and uncertain damages awards. Had Kansas and Colorado
anticipated or even suspected what the Court today effects, they
almost certainly would have negotiated a provision in the Compact
to address the situation. States in the future very likely will do
so in the wake of the Court's decision, which creates a very
different backdrop from the one against which Kansas and Colorado
operated. In the absence of such a provision, however, "the loss
[as to interest] should remain where it has fallen."
Board of
Comm'rs of Jackson Cty., supra, at 353; see Third Report § XI,
at 101 ("Prejudgment interest here neither takes from those who
benefitted, nor goes to those who were injured").
For the foregoing reasons, I respectfully dissent from the
Court's award of prejudgment interest.
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