Orff v. United States - Oral Argument

Argument of William M. Smiland

Justice Stevens: We will now hear argument in Orff against the United States.

Mr. Smiland.

Mr. Smiland: Justice Stevens, and may it please the Court:

The relevant language of the 1963 contract, as illuminated in the surrounding circumstances, was confirmed in the express terms of the 1986 stipulated judgment which commanded the district and the United States to perform the contract.

In particular, the first sentence of paragraph 4.2, which is at joint appendix page 111, states... and I quote... the district acknowledges that it entered into the 1963 contract for the benefit of Areas 1A and 1B.

That's the premerger--

Justice O'Connor: Mr. Smiland, do you mind telling us why the petitioners never filed suit in the Court of Federal Claims?

Mr. Smiland: --Yes, Your Honor.

There's a long history of litigation here.

It began with the first suit in 1979.

We were in the district court there.

There were administrative and constitutional and equitable issues as well, and we were able in that initial case to combine all those forms of relief in the district court.

And then, of course, we got this judgment that I began to read from.

And from then on, we had four or five other cases all in the district court.

We do acknowledge that on the breach of contract, there is concurrent jurisdiction under the Tucker Act.

Justice Breyer: Is it concurrent?

I mean, the... the statute I'm reading, the one you brought is consent is given to join the United States as a necessary party defendant.

Is that what happened here?

They were joined as a necessary party defendant?

Mr. Smiland: Well, we think so, Your Honor.

Justice Breyer: They were?

I... I think that's... isn't that... what rule of... I thought there's a... a Rule of Federal Procedure.

I can't remember what... what's the--

Mr. Smiland: Rule 19(s)?

Justice Breyer: --Yes.

Is that what they were joined under?

Mr. Smiland: That... that procedure was not invoked here.

Justice Breyer: No.

Well, all right.

Were they... there's technical phrase well known in the law to be joined as a necessary party defendant.

Given the normal meaning in the law of that technical phrase, is that what happened here?

Mr. Smiland: No.

What happened... what happened--

Justice Breyer: No, okay.

If it did not happen, then how could you possibly sue in that court rather than the Court of Claims where the statute says you can sue on any implied, as well as express, contract?

Mr. Smiland: --Because the waiver of sovereign immunity statute says in any suit.

Justice Breyer: It doesn't mean in any suit in sentence 2 of the kind referred to in sentence 1?

Does it mean any suit in the universe?

Any suit in the world?

Any tort suit?

I would have thought that sentence 2 refers to sentence 1.

Mr. Smiland: Well, it... it does and that case was litigated against the United States by my clients and... and we won in the Peck case.

And we think that should have ended the matter.

Justice Breyer: But don't... how can we, if we have... if... if I read this... this as meaning technically what it says and it's a jurisdictional matter, how could I do anything other than say, go to the Court of Claims, you're in the wrong court?

Mr. Smiland: Any suit is also in the first sentence, Your Honor.

Justice Breyer: Yes.

It says--

Mr. Smiland: And... and--

Justice Breyer: --in any suit you can join the United States as a necessary party.

Mr. Smiland: --The... the... in the sue and be sued cases, this Court construes that very broadly, and this is the same root word and--

Justice O'Connor: Well, but we don't give broad construction to waivers of sovereign immunity.

Mr. Smiland: --I--

Justice O'Connor: Quite the reverse.

And it says to join the U.S. as a necessary party defendant in a suit to adjudicate, confirm, validate, or decree the contractual rights of a contracting entity in the United States regarding any contract executed pursuant.

Now, I guess the farmers were not technically the contracting entity.

Mr. Smiland: --They were not the signing--

Justice O'Connor: No.

Mr. Smiland: --party.

Justice O'Connor: So you've got more problems.

Mr. Smiland: Our... our argument... and again, this has been resolved in the lower courts against the Government.

But our... our view is that by the nature of the intended beneficiary doctrine, the duty is owed to the third party, as well as to the promisee, and it's enforceable by the third party, as well as the promisee.

Justice Ginsburg: If you... if the lower courts were of this view, why did the district court in this case give you three opportunities to have your contract claim transferred to the Claims Court?

Mr. Smiland: Once the determination was made that we were not intended third party beneficiaries, that was the law of the case, and had it been transferred to the Claims Court, we... we would have been bound by that determination.

We felt we had to bring to a final resolution the... the intended beneficiary issue before we could proceed in the Claims Court either.

Justice Ginsburg: But it does suggest that the district court had at least some concern whether the case... your claim had been lodged in the right court.

Mr. Smiland: Yes, although again that... that court had been hearing these matters for many years in... in numerous cases without this issue ever having come up.

Justice Breyer: Well, but it's a... see, I want to know what I'm supposed to do.

As I read the language, you're out.

As I understand the purpose of the statute, it makes sense to me if you're out, and it doesn't make sense to me if you're in.

And maybe there's some lower court precedent to the contrary, which I'd certainly read, but is there any Supreme Court precedent to the contrary that supports you?

Mr. Smiland: Just the... the language of in any suit definitely is--

Justice Breyer: No, no.

But that isn't the limiting part.

The limiting part is in any suit of a certain kind.

Mr. Smiland: --Yes.

Justice Breyer: What they give consent to is joinder as a necessary party.

And that is not what happened here.

Mr. Smiland: Only the... the general principle that language should be read in its ordinary meaning--

Justice Breyer: It's ordinary meaning, you're out because the ordinary meaning of joinder as a necessary party is you weren't joined as a necessary--

Mr. Smiland: --There... there at least is no evidence that Congress had rule 19 in mind when it enacted either the '52 statute or the '82 statute that we... we stand on.

Justice Kennedy: Well, it's something that I hadn't concentrated on before now, but your position that, well, if you're transferred to the Court... to the Court of Claims, that you bring with you all of the previous rulings of the United States district court in California and that those are somehow binding because of the law of the case... what is the authority for that?

The... the court that's transferred has to accept all the rulings that have been made previous to the transfer?

Mr. Smiland: I... our understanding is if, obviously--

Justice Kennedy: I mean, what's the authority for that?

Mr. Smiland: --I can't cite you authority, Your Honor, but I... we were very concerned about that.

If there was no waiver of sovereign immunity in the first instance, then the lower court's ruling on intended third party beneficiary I would think should be vacated.

Justice Scalia: Could I... I... I guess I'm not following this.

I don't know why, Mr. Smiland, you... you have not referred to the last sentence of... of what you assert was the waiver of sovereign immunity, which says any suit pursuant to this section may be brought in any United States district court in the State in which the land involved is situated.

Why isn't that what you're relying on?

Mr. Smiland: It is and... and when I was talking about in any suit--

Justice Breyer: --How does that help you?

Because it says any suit pursuant to this section, and of course, this section starts off by talking about addition of a person as a necessary party.

So how does the last sentence help you?

Justice Scalia: I... I--

Mr. Smiland: --Well, it... it... if the words, join necessary, limit any suit and the language that Justice Scalia referred to, then... then maybe we're in trouble.

But otherwise--

Justice Scalia: --I... I take that to mean that when you sue one defendant and you also sue the United States as a necessary party defendant, that suit... any... that would be a suit pursuant to this section.

I... I don't know what other meaning that... that sentence could have.

When you sue two parties, one of whom is the United States, by reason of the fact that it's a necessary party defendant, that suit is a suit pursuant to this section and it can be brought in any United States district court in the State in which the land involved is situated.

I... I don't know what... what other suit that... that sentence could refer to.

Justice Breyer: You... you agree with that.

I... you're caught in between us here, and I understand.

[Laughter]

And I guess we have to figure out what is the right meaning of that initial phrase.

Justice Ginsburg: Perhaps you can explain.

This was not your suit originally.

You intervened.

Right?

This was started out by the water district.

Mr. Smiland: --The district sued the United States.

We intervened.

Justice Ginsburg: And then after some, I think, 2 years--

Mr. Smiland: Yes.

Justice Ginsburg: --the water district bows out.

It has settled its case.

It's a mystery what it settled for.

At least, I didn't see it in any of the briefs.

Why did the water district, having brought this case, then say, we're satisfied, we're out?

Mr. Smiland: The record is very sparse, Your Honor.

There is the district's motion which says pretty much what it said in its brief, that there was a... a thing called the principles between it and the United States and various parties.

And as a result of those principles, which are not in the record, although they are a matter of public record, the... the district in its discretion elected to dismiss the case.

We opposed that.

We would have hoped the district would have kept going.

We lost that opposition.

The district was dismissed, and we were allowed to proceed on our own.

Justice Stevens: Mr. Smiland, can I ask this question?

If Justice Breyer is... the thrust of his question is right, I... I think the district itself could not have brought the suit under his reading of the sovereign immunity.

And I just wonder, has the United States ever taken the position that the district could not have initiated this litigation?

Mr. Smiland: Not to my knowledge, Your Honor.

Justice Scalia: Could... could we hear your argument on... on the sovereign immunity point as opposed to the venue point?

What... on what ground do you say the United States has waived its... its immunity from suit in this case?

Mr. Smiland: There are two statutes.

Justice Ginsburg: May... may we just back up to the question... your answer to Justice Stevens?

I thought that this wasn't a suit initially on the part of the water district for money damages.

I thought they were seeking declaratory relief against the United States.

Mr. Smiland: They pled both, Your Honor.

Although at that time the water still was available for delivery, it hadn't flowed to the ocean.

And the money had not yet been collected and spent.

So the focus initially was on equitable relief to stop--

Justice Ginsburg: Because one could... one could read the words, suit to adjudicate, confirm, validate, or decree the contractual rights, as a suit for declaratory relief but not encompassing damages.

Mr. Smiland: --Both statutes we cite say that judgments can be entered in the same manner, to the same extent as a private individual under like circumstances, language I believe from the Federal Tort Claims Act.

Again, both in the 491 F. Supp. decision under the McCarran Act and in the Peck case, the district court held that money damages were encompassed by that.

So both statute... statutes on which we rely have language in it taken from other sources of law, with which this Court is very familiar and has opined on several times.

The... the only unique parts of... of either of the two statutes that we stand on are... are the rights.

One refers to administering a previously adjudicated right to the use of water, and the other is the contract language we've discussed.

Justice Scalia: Can you turn to sovereign immunity now?

Mr. Smiland: Yes.

Justice Scalia: And... and let me make... make it easy for you.

Do you know of any case, other than cases decided by this friendly district judge, in which a suit has been allowed against the United States based on nothing more than the status as a third party beneficiary of a contract to which the United States has... on which the United States has agreed to be sued?

Is... is there any such case?

Mr. Smiland: No.

Justice Scalia: And... and you think it's clear that... as our sovereign immunity law requires, that such a third party beneficiary can sue the United States?

Mr. Smiland: For example, in the U.S. v. District Court case decided by this Court in 1971, under the McCarran Act, that fact situation was not before you, but the Court did say that the rights to which the statute referred were all inclusive.

It read it broadly.

Justice Scalia: I... I don't understand that.

The rights were all inclusive.

As... as I understand the law of third party beneficiaries, it... it used to be... and... and perhaps at the time this statute was enacted still was... quite... quite restrictive.

It's only in more recent... I don't agree with the Government's argument that... that you have to, in an ordinary contract, explicitly refer to the third party beneficiary's rights.

But when sovereign immunity is at issue, it's... it's a different question, it seems to me.

Mr. Smiland: Well, we have explicit rights here and... and it would seem to me that if... if... and this was certainly the legislative history behind section 221, not... not behind McCarran.

But if... if the same duty is owed by the promisor to the third party that it owes to the promisee, and if the third party has the same rights of enforcement as it does under 304 of the Restatement that the promisee would have, why should it be any different?

Why would Congress have intended to exclude that?

And it used the word contract.

Justice Scalia: Because... because we have a rule that says when Congress wants the United States to be sued, it... it must say so clearly.

Mr. Smiland: You also have the rule that the word contract means the law of contract and not parts of it.

Justice Stevens: But yes, isn't it arguable, though, that in this case the Government probably thought that it would be efficient to have the district represent all the farmers for whatever their... to the extent their interests were shared with one another, rather than having every individual have the same right to bring... bring a lawsuit?

Mr. Smiland: Efficient in... in collecting land assessments and water charges, but there's no evidence in the... either the language of the statute, I submit, or the--

Justice Stevens: Except for the fact that the district is the party to the contract, though.

Mr. Smiland: --Nothing was said about litigation, let alone intended third party beneficiary--

Justice Kennedy: Well, but the... the whole point of the district... correct if I'm wrong.

This is your area.

The whole point of the district was to make it easier for the United States to know with whom it was dealing to have an efficient system, and if you say, well, that doesn't include lawsuits for damages, it seems to me that destroys much of the purpose of the formation of the district.

Mr. Smiland: --There's a lot of legislative history there, and it talks a great deal, as you say, Your Honor, about efficiency and... and the convenience.

But it's not talking at all about litigation, about remedies, about rights once there's a breach.

Justice Scalia: But you haven't really achieved very much efficiency if you simply get the United States out of the business of collecting the payments and of keeping track of the payments but leave the United States subject to suit when the person who has authority to do... do these things goofs.

I mean, what... what trouble has the United States saved itself?

It would still have to ride herd over... over the person with... with whom it's dealing.

Mr. Smiland: Well, it... this is a transaction between a water seller and many water buyers.

Yes, in 1926 districts were put in the middle, but it's also true in 1939 in... in the section 9(e), Congress authorized the particular type of contracts we have here, so called water service contracts, and it doesn't mention district.

And as a matter of fact, the Ninth Circuit has held that the bureau had the discretion administratively to deal with individuals.

So throughout the history of the reclamation program, you... you have the... the core transaction is... is a water sale from the Government to... to farmers.

And that's was the case on day one in 1902 and it still is.

And I'd just like to remind the Court that paragraph 3 of the stipulated judgment at page 110 of the joint appendix is in our view dispositive here.

This was a... an agreement by the United States and the district, approved by a court after formal settlement notice was dispatched to two formal classes, and it says, any appropriate relief may be obtained against the Federal parties by the filing of a new action for violation of any contract arising independently of this judgment.

Justice Scalia: But the... the Justice Department has no authority to... to consent to suit which... which Congress has not consented to.

I don't see how this strengthens your case.

Mr. Smiland: Again, if... if this Court should hold that neither of the two statutes on... on which we stand waive sovereign immunity, and--

Justice Scalia: And this alone wouldn't... wouldn't remedy the--

Mr. Smiland: --Then... then--

Justice Scalia: --the absence--

Mr. Smiland: --the decision that we're not intended beneficiaries should be vacated and we should have a chance to go to the court... Claims Court.

I'd like to reserve, Your Honor, 3 minutes, if I may.

Justice Stevens: You may, indeed, Mr. Smiland.

Mr. Minear, I think you're up next.

Argument of Jeffrey P. Minear

Mr. Minear: Justice Stevens, and may it please the Court:

Petitioners cannot maintain this suit for breach of the Westlands contract because the Westlands contract is itself subject to the rules of sovereign immunity.

And section 390uu authorizes only a limited waiver of sovereign immunity.

It does not authorize suits by incidental beneficiaries for money damages.

For many of the points that have already been raised by Justice Breyer, Justice Kennedy--

Justice Stevens: Mr. Minear, do you think it does waive sovereign immunity for suits brought by the district?

Mr. Minear: --In one circumstance, Your Honor.

This suit allows a district that has been sued by individual water users to join the United States in the ongoing suit and, in fact, remove the case to Federal court if necessary, so there can be a determination of all the rights in those--

Justice Stevens: Did this suit begin as a suit by a water user against the district and then you were joined later?

Is that--

Mr. Minear: --No, it did not, but that did occur in the Barcellos & Wolfsen litigation that ran between 1978 and 1980.

Justice Stevens: --Well, in this suit, did not the district bring it against the United States?

Mr. Minear: That's correct.

Justice Stevens: And was that a... was that jurisdiction proper at that time?

Mr. Minear: That suit was brought under the APA, and the district brought the suit on that basis.

Justice Stevens: But was it properly brought is what I'm asking you.

Mr. Minear: That suit was properly brought.

Justice Stevens: Okay.

Mr. Minear: But it was not brought under 390uu.

Instead, there was an allegation that the United States had acted unlawfully and the Westlands relied on the Administrative Procedure Act.

Justice Scalia: And no money damages.

Mr. Minear: And no money damages as well, and that's what distinguishes this case.

Justice Breyer: So that... so your view... I mean, what... what makes sense to me is that the section means what it says, that consent is given to join the United States.

That means join them in an ongoing suit.

And it makes sense because what the United States wants is anyone who sues them for money damages goes to the Court of Claims.

But of course, where you have an ongoing suit between two other people, we'll make an exception because there it's already in another district and we'll let you bring the United States in as a necessary party.

The other exception is when you don't sue for money damages.

That's in section 702 of the APA.

Now, that to me makes a lot of sense and it's consistent with the language.

Is that your view or do you have a different view?

Mr. Minear: Yes, that is our view, and let me supplement your comments in this regard.

Section--

Justice Kennedy: May I... may I... has that always been your view throughout?

[Laughter]

Mr. Minear: --It has been our view under 390uu when section 390uu has been... has been raised.

Justice Kennedy: But throughout the litigation?

Mr. Minear: Throughout this litigation?

I can't... I can't be sure that we've maintained a consistent position, but ultimately this is a question of sovereign immunity.

So the importance is that we get the issue right here.

Justice Scalia: There has to be an ongoing suit.

You think this section does... does not permit somebody to initiate suit against one party and at the same time against the United States as a necessary party.

Mr. Minear: Your Honor, let me explain why that's the case, and there was an answer--

Justice Scalia: Why what is the case?

Mr. Minear: --Why there's a necessity for an ongoing suit.

Justice Scalia: You... that is to say, there's a suit between only two individuals and then the United States is brought in.

Mr. Minear: Your Honor, this... this provision was enacted in response to a specific problem that's illustrated by the Barcellos & Wolfsen litigation.

Individual farmers sued an irrigation district.

The irrigation district was concerned that it might be subject to inconsistent liability to the farmers on the one hand and the Federal Government on the other, and it sought to join the United States.

There was no mechanism in 1978 for that type of suit.

Congress acted--

Justice Scalia: I understand that.

That's one situation that this provision could cover, but there are other situations that this provision could... could cover.

Let's say a farmer wants to bring suit against the district, but it doesn't really know whether the fault is with the district or whether the district was... was compelled to do what it did by the United States.

So it sues the district and just in case the United States was... was responsible, it joins the United States.

Why doesn't the language entirely permit that kind of a suit?

Mr. Minear: --The language could be construed to allow that, but... but waivers of sovereign immunity are construed narrowly, and the language I think is more properly construed, as Justice Breyer has suggested, to allow joinder as a necessary party.

And in fact, it was enacted in specific reaction to that problem in the Barcellos & Wolfsen litigation where we did have ongoing litigation and there was a sense by the irrigation district they needed to join the United States so they would not be subject to inconsistent suits.

So although I think that the language can bear the... the interpretation that you're suggesting, Justice Scalia, nevertheless, I think the better interpretation is the more narrow one that is--

Justice Scalia: Then... then how do you explain the last... the last sentence of that provision, which is any suit pursuant to this section?

The only suit that the section refers to is a suit in which the United States is joined as a necessary party defendant.

That's the subject of the section.

Mr. Minear: --Yes, and--

Justice Scalia: And... and the last sentence says, any suit pursuant to this section may be brought in any United States district court.

And I read that to mean if you want to sue the United States as a necessary party initiating a suit, you can bring it in... in any district court in which the land involved is.

Mr. Minear: --Your Honor, we read that as allowing removal in those circumstances when the United States is joined later.

In any event, I have to say that with regard to... to this disagreement, it does... it's not dispositive or even affect the case here.

The fact is that this waiver of sovereign immunity under no circumstances would allow this suit to go forward.

Apart from the money damages aspect, which itself is... is... would preclude this type of suit, these parties are not intended beneficiaries, and without being intended beneficiaries, there's... in no circumstances could they ever evoke these provisions.

Justice Ginsburg: Mr. Minear, when you say... when you say not money damages, do you read the words that I read to Mr. Smiland restrictively or do you think they accommodate money damages, that is, suit to adjudicate, confirm, validate, or decree the contractual rights of a contracting entity?

Mr. Minear: We think that under your cases, such as Pena v. Lane, there needs to be a specific reference to money damages.

This simply is referencing declaratory relief, and so we do not believe it would allow an award of money damages.

Rather, the party must go to the Claims Court if they're seeking money damages.

And in fact, the waiver of sovereign immunity there is somewhat broader.

It does, as mentioned before, allow implied or express contracts.

So this suit is simply in the wrong court.

But I would like to--

Justice Kennedy: So money damages... waiver always used the word money damages.

When it says adjudicate the rights under the contract, that doesn't include money damages?

Mr. Minear: --No, I do not think in this context it would.

I think there needs to be something more specific.

We're really talking about declaring rights here and not providing a specific remedy.

And this Court has always taken the view that the Claims Court jurisdiction is the appropriate forum for deciding money damages.

Justice Scalia: What about the second sentence?

The United States, when a party, shall be deemed to have waived any right to plead that it is not amenable thereto by reason of its sovereignty and shall be subject to judgments, orders, and decrees of the court having jurisdiction and may obtain review thereof in the same manner and to the same extent?

It's subject to the judgments, orders, and decrees of the court to the same extent as a private individual under like circumstances.

Why isn't that enough to... to say that the court can... can award damages?

Mr. Minear: Your Honor, I think that simply refers back to the previous sentence, which refers to adjudicate, confirm, validate, or decree.

Now, if you interpret that to include money damages, then the second sentence would follow, but I... I think the two have to be construed together.

And in our view simply allowing a party to adjudicate, confirm, validate, or decree in these circumstances would not allow award of money damages.

Certainly I think Congress would be much clearer.

Justice Stevens: Yes, but if contractual rights include a right to be paid for something, why wouldn't you get a money judgment in a case like that?

That first sentence certainly covers the possibility of a contractual right to be paid something.

Mr. Minear: Your Honor, again, waivers of sovereign immunity are construed narrowly.

Now, let's--

Justice Stevens: That's pretty clear language.

Mr. Minear: --I have to say that the language... you're saying that the language... yes, could it conceivably be... be interpreted in... on... that broadly.

But that's not--

Justice Stevens: Certainly if it were not a... a United States and were a private individual, it would include money damages.

Mr. Minear: --That might well be, but this is--

Justice Stevens: And... and the next sentence, as Justice Scalia points out, says the United States shall be treated just like a private party.

Mr. Minear: --Yes.

But Your Honor, ultimately I think that we have to focus on that this is a waiver of sovereign immunity.

And... and so far we have not touched on the question of whether these parties--

Justice Stevens: Well, I think you've got a very strong argument when you talk about an incidental third party beneficiary not being a contracting party, but now you're asking for a much broader holding than really necessary to dispose of this case, it seems to me.

Mr. Minear: --Your Honor, I think I started with that point, that an incidental beneficiary cannot invoke this... this provision.

And I'd like to... to continue with that point because the party here is merely an incidental beneficiary and not an intended beneficiary.

Under any of the... the tests that have been applied for third party beneficiaries, the party here would not qualify as an intended beneficiary.

Most importantly, the contracting parties here, the United States and Westlands, expressed no intent to give this party enforcement rights.

What's more, the contract does not provide that performance would be rendered to... to the petitioners in this case.

The contract is quite clear that performance is rendered to Westlands.

This is a contract in which the United States furnishes a specified amount of water to Westlands and Westlands pays money for it.

Westlands then has a separate obligation with regard to the farmers.

Justice Scalia: Separate from... where does that... that obligation come from?

Mr. Minear: That arises from the regulations that the Westlands Water District has enacted that provides for the delivery of water from Westlands to the individual farmers.

The United States' obligation--

Justice Scalia: That's a State... a State-created obligation?

Mr. Minear: --That's right.

That is... and Westlands has the... has the option of either engaging in contracts with the individual farmers or distributing the water through regulation, and it has opted for regulations.

Now, Westlands itself is a governmental unit.

It is comprised of the... of the very farmers here, among others, who have brought this suit.

And it has the authority to act in a representative capacity on behalf of all its members.

And that is why the United States enters into contracts with irrigation districts precisely because it allows them to reach accord and agreement and to resolve their disputes.

Now, the fact is that the United States and Westlands agree on a great many things.

Sometimes they disagree, but when we disagree, we're able to... to speak to one another as two governments representing constituencies and hammer out our differences.

And that would be impossible if these types of third party beneficiary suits were allowed.

And I think that goes to the crux of what the United States' real concern here is.

When there are contracts between one government and another, just as in the context of treaties or compacts among the States, it's vital that the two governmental units be able to deal with one another as governments and to be assured that if they can reach accord on behalf of their representatives... on behalf of the parties they represent, that that will resolve the issue.

If it were otherwise, this type of distribution of water--

Justice O'Connor: Well, you don't take the position, do you, that Westlands could have agreed with the United States that it wouldn't enforce its new laws that deprived the farmers of water?

You don't take that position.

Mr. Minear: --But let's look at what would happen, Your Honor, if that did happen.

The individual farmers would sue Westlands, claiming that Westlands was not living up to its contract obligations.

Westlands would invoke 390uu and join the United States in that suit.

And the question of the legal rights would be determined on that basis.

So the mechanism that... that we've specified and the way that we interpret it deals precisely with the problem that you've... you've addressed.

Justice O'Connor: Yes, but you can't... the... presumably the Federal Government can't negotiate away the Endangered Species Act or something.

The fact is that new laws were passed after these contracts were entered into with Westlands.

Isn't that right?

Mr. Minear: That's correct.

And again, I think it's instructive to see what happened in this case.

When those laws were enacted, the United States reacted to those.

Westlands brought a suit under the APA challenging the interpretation of the statutes.

Westlands was entitled to do that under the APA.

The United States and Westlands reached an accord, together with the environmental intervenors in this group, that was satisfactory to those parties.

And it simply would be very disruptive of the system if a minority of farmers in the Westlands District could then bring a suit and upset that agreement and that accord that had been reached.

Finally, I'd like to make a brief--

Justice Kennedy: Can the district get damages from the Government?

Mr. Minear: --Technically yes, but their damages are limited by the terms of the contract.

Westlands could sue the United States in Claims Court for a breach of the contract, but the contract itself says that any damages that are... that the sole liability of the United States in these circumstances would be an adjustment of the account.

In other words, there are not consequential damages.

Rather, if we do not provide Westlands with the water that Westlands believes it's entitled to, then we stand liable for an adjustment in the payments that Westlands would make to us.

The suit that is being brought here is asking for consequential damages, and we believe that the contract here does not allow consequential damages.

That, of course, is a merits question that there's no need for the Court to reach, but that is the way it would be resolved in Claims Court in... in our view.

I'd like to also raise the question of property rights since that has... has come up, that one of the arguments that has been made by Westlands is that they're entitled to status of a third party beneficiary because they claim they have water rights in these circumstances.

The fact is that the United States, the State of California, and Westlands, as well as the California Water Resources Board and the first tier of California courts, have all concluded they do not have the... the water rights that they claim.

But in any event, our view is that that issue is irrelevant to the inquiry here.

Rather, the question of third party beneficiary status turns on the intent of the contracting parties.

Did they or did they not intend to give enforceable rights to the third party?

Here there's not a shred of evidence that that was an intent... there was an intent to create enforceable rights in that third party.

Quite to the contrary.

The only reference of third parties, the farmers, in the contract here is directed to limitations on what the district can do once it receives its water.

It doesn't create rights in them... the individual farmers.

Quite to the contrary.

What it does it restricts the ability of the district in order to protect the United States' interests, to make sure the United States will be paid for the water that it ultimately provides to the district.

The central point that I would like to leave you with, though, here at the end is the importance of protecting the relationship between the United States and Westlands.

But although we disagree on some matters, we are able to reach accommodation and agreement, and when we're able to do that, it's to the good of all concerned.

The contracts and the laws here are structured to allow those types of agreements to be reached, and we think that allowing third party beneficiary suits would be very disruptive of that... that operation.

Justice Stevens: Thank you, Mr. Minear.

Mr. Somach, will you tell us what the district's views on this whole matter are?

Argument of Stuart L. Somach

Mr. Somach: Yes, Your Honor.

Justice Stevens, and may it please the Court:

Westlands Water District has argued in its brief that petitioners are not intended third party beneficiaries with enforceable rights under the 1963 contract.

I want to make two points from the perspective of the district why this must be so.

First, allowing a direct right of action by petitioners is not practical or consistent with the district's need and ability to function as a governmental entity and to allocate all of the water that it receives under contract to all of the landowners within the... the district.

This is a scarce and valuable resource, and these types of third party lawsuits jeopardize the district's ability to be able to provide water pursuant to California Water Code provisions to all of the landowners within the district.

Second, the laws of the State of California and reclamation law, working in harmony one with the other--

Justice Scalia: Excuse me.

Could you expand on the first point a little bit?

I mean, you say you don't want to be bothered with lawsuits.

Is... is that... is that all that it amounts to?

Mr. Somach: --No.

I... I think quite on the contrary.

You know, and unfortunately, the... the history of this contract and these... these issues has been anything other than the district avoiding litigation.

The... the whole concept of a water district is not to individualize or incrementalize the water and interests in water in any one group of landowners or any one landowner.

The idea is that the rights of all of the landowners to all of the water under the contract are to be treated as a whole and allow the district to provide protection to all of the landowners within the district as a whole, the point there being that the water doesn't belong to any one landowner or a group of landowners.

It belongs to the whole.

And in fact, the way the district operates, the way it has to operate is in the context of the whole.

Bonds are issued.

Encumbrances on lands are... are incurred, all based upon not individual rights to water but rather broad rights of water throughout the district.

To allow a small group of landowners to decide how to administer the contract, how to enforce the contract in any one given situation leaves decisions that are critical to all of the landowners solely in the hands of an unaccountable small group of... of landowners.

Justice Scalia: Can't... can't such a suit be brought in State court?

I can't believe that this district can do whatever it wants with the water.

Mr. Somach: Oh, absolutely not.

Yes, it... yes, it can.

Justice Scalia: Really?

Mr. Somach: No.

What I meant to say was yes, you are right.

Justice Scalia: Okay.

Mr. Somach: And absolutely not.

It can't do just anything it wants to do.

It is subject, as a governmental entity, to all the strict requirements of California water law and governmental law, for that matter.

If, for example, these petitioners decide for whatever reason they don't like a decision of the... of the board... and in fact, that is an example that exists emanating out of the facts of this case.

When the district decided that it was better to settle the litigation, these landowners first petitioned the... the governing body of the... of the district and sought to... to have them not proceed in that manner, the way any other group of citizens or constituents with any other governmental entity would have proceeded.

The district decided, however, that it was in the best interests of all of the landowners within the district to settle the litigation.

Now, at that point in time certainly, these petitioners had the normal and ordinary rights that any... any constituent within the district has to be able to challenge a decision that has been made by the district.

That includes, for example, writ proceedings, to argue that the decision of the board was arbitrary, capricious, otherwise unlawful, and that it should... should be mandated to... to proceed in some other fashion.

If the issue were damages, this district is subject, like any other governmental entity within the State of California, to the government Tort Claims Act if... if they're tortious type damages.

And if we have arguable impairment of property rights, this district is subject to the California constitution, the United States Constitution, and the government code provisions that provide for litigation with respect to those broader types of... of damages.

And quite frankly, this is a governmental body and it is very susceptible to the political process.

It is not an easy thing for... for the district to be standing up here and telling you that its landowners aren't entitled to receive what they want.

That's a very difficult for the district to... to do.

But in dealing with the rights of the entire district, it's an absolute essential thing to do.

If these landowners had exercised their prerogatives under California law, they could have, assuming they were the majority, controlled the decisions of the board of directors in the way that any majority constituency controls the director... the... the direction and the decisions of a... of a governing board.

You know, this... this lawsuit is instructive in... in a number of ways in terms of these practical concerns that we have in terms of how in the world are we going to be able to administer a contract like this one.

How are we going to do all of the things that the Water Code has told us that we have to do if, at any given time, a landowner, a small group of landowners is able to go into Federal district court and independently decide that it wants to administer the contract that the district has with the United States or to enforce terms of the contract that it has with the United States in a manner that's inconsistent or different than the way--

Justice Stevens: I don't really understand why that's any greater burden than the fact they can sue you in State court anyway.

They... they can always bring litigation.

Mr. Somach: --Well, it... it really requires the district to, in a sense, race to the courthouse with the... with the petitioners in order to be there first in order to have its views of the contract--

Justice Scalia: Well, the suit in State court, I assume, would... would only be... the claim would be that you were acting arbitrarily, and so long as your interpretation of the contract was a reasonable one, the suit would fail.

Mr. Somach: --Yes.

Justice Scalia: Whereas, this suit here... it doesn't matter how reasonable it is.

If it's wrong, it's wrong.

I mean, it's quite a different--

Mr. Somach: No.

I think it is a different situation, and I agree with what you... what you have said, Your Honor.

I do, however, want to... to not avoid the concern that may be expressed here, and... and that is, that... that what it does is it... it forces the district into a situation of chasing its landowners, in essence, around from one litigation forum to another in order to ensure that its means of controlling and... and administering the contract is not jeopardized.

The fact that the landowners... if the landowners can move forward independently with litigation with respect to the contract, what it really does is create in a sense a... the contract becomes this very interesting moving target where the district has its views about what the contract is and how it should be administered, how it should be enforced, and then it proceeds in one direction as, for example, it did with the settlement in this litigation, deciding that that was the best way to protect the interests of the district.

Had these petitioners on the merits in a hypothetical situation prevailed with a totally different result, that would have substantially affected and impacted the district's ability to be able to maintain the obligations and the commitments that it made to the other settling parties.

That destabilizes the ability of the district to actually act in other governmental forums, in forums with the United States, with the State of California, with other districts in the context of attempting to say we control the contract, we enforce its terms, and we can make commitments.

And when we make those commitments, we can abide by and we can live up to those commitments in a way that... that governments ought to be able to do when they're... when they're making those types of commitments.

Having the landowners being able to come or... and here, I want to make certain.

When I use the word landowners, I'm not saying that the landowners are not beneficiaries of the contract.

They certainly are.

Justice Kennedy: What about the provision in the judgment at page 110 that was... that was cited to us, that... that the parties may obtain other appropriate relief by the filing of a new action?

Mr. Somach: Yes.

I... I think that that... that phrase is actually begun as a proviso, and I view it as not limiting the ability of the area I landowners in the Barcellos & Wolfsen judgment that you're... that you're quoting from from being able to act in any other way.

It was a nonlimiting provision.

The... the first part of the... the part that you read deals with what their rights to enforce were.

The second part was a proviso that simply said notwithstanding this, whatever else you're able to do, you may do.

Thank you for your time.

Justice Stevens: Thank you, Mr. Somach.

Mr. Smiland, you have 9 minutes remaining, but you do not have to use it all.

Rebuttal of William M. Smiland

Mr. Smiland: Thank you, Your Honor.

What happened here is that the United States sold half the water it was obligated to sell under the contract.

It doubled the price it was permitted to charge on the other half.

It was a massive harm to the farmers.

I'm sure you understand.

Justice Ginsburg: Well, you say under the contract.

I thought there was a provision in the contract that said that the United States will not be responsible for under deliveries, and I think it listed the drought and the last thing was any other cause.

Mr. Smiland: Well, that's what we were about to go to trial on, Your Honor.

That's a merits issue.

The Ninth Circuit has abstained on whether there was a mandatory statutory duty to cut off this water, and I urge the Court not to... to dive into that pool.

We're trying to get in the courthouse doors.

Justice Ginsburg: But you were saying there's... there's a right under this contract to recover from the United States for an under delivery.

Mr. Smiland: We have massive cross summary judgment motions on that issue and we were entitled to go to trial on that... on our claim of liability.

Justice Souter: What--

Justice Scalia: If--

Justice Souter: --No, please.

Justice Scalia: --No.

I've asked a lot of questions.

Go on.

Justice Souter: What do you make... excuse me.

What do you make of the argument for reasonable construction of the contract that in fact you just simply cannot have a system that would promise the chaos that... that you are promising?

Mr. Smiland: I... I don't make much of it.

The parties here and... and the parties in the West fully understood for 20 years, after Allen Orchards, that the farmers were intended third party beneficiaries.

That's... we settled in 1986 with that understanding, and this parade of horribles just has not come to pass.

Justice Souter: Is... is it correct, as Justice Scalia suggested earlier, that so far as State litigation is concerned, it would be limited simply to arbitrary, unreasonable behavior?

Mr. Smiland: That's true.

And even more fundamentally, the United States breached the contract.

The district didn't do anything wrong.

Why would we sue the district when the United States cut off the water and doubled the charge?

Justice Scalia: Well, I think it's arbitrary not to... not to... for an agency, of which you're... you're in some sense at least the beneficiary, not to insist upon its contract rights, just as a shareholder can insist that the... that a corporation enforce its contracts.

Mr. Smiland: We had a little mini trial on that in front of the... in front of the district court, and... and I made that argument, Your Honor, and the district court rejected it.

Justice Scalia: No, he was wrong.

That was--

[Laughter]

Mr. Smiland: I agree.

Justice Breyer: I guess the reason that you would sue the district would be if you didn't have any enforceable promise from the United States that they didn't... wouldn't do it.

Mr. Smiland: Well, we... we--

Justice Breyer: Now, you think you do.

That's the issue in the case.

Mr. Smiland: --We had a stipulated judgment.

Justice Breyer: And so therefore... therefore, I'm looking for where that promise is.

And you started out by citing a page, which wasn't a page of the contract.

It was a page of some kind of settlement, and that page said that the district agrees that they entered into the contract with helping the farmers in mind.

I'm sure they did.

So what.

I mean, I might buy a house with the idea of helping of my child.

I'm going to give it to him.

That doesn't mean he can enforce the contract.

Mr. Smiland: German Alliance, Your Honor.

Justice Breyer: You mean my child can enforce a contract I enter into with another... I buy a house and I say I intend to give it to my daughter.

Mr. Smiland: If the contract--

Justice Breyer: And then she can enforce the contract?

Mr. Smiland: --If the contract says--

Justice Breyer: Yes.

If the contract says.

Now, that's why I was interested that you didn't cite language in the contract.

Mr. Smiland: --Oh, yes, we did, Your Honor.

Justice Breyer: You... well, I mean, you started out by referring me to page 110 or 111--

Mr. Smiland: That's true.

Justice Breyer: --which doesn't.

Now, what is the language in the contract--

Mr. Smiland: Articles--

Justice Breyer: --that helps you the most?

Mr. Smiland: --15 and 29(b) of the '63 contract and also the 1965 contract explicitly refers to benefit, and probably most dramatically, the recordable contracts that were signed actually with my clients and the United States said that they were made in consideration of the direct and indirect benefits that those farmers would gain from the 1963 contract.

Now, paragraph 4.2 in the judgment, which came some years later, reconfirmed that.

What was new and different about the judgment is that for the first time it made explicit... we think it was implied earlier, but explicit that there was enforceable rights in the farmers, and we've argued it under your German Alliance test that's not required, but if it was required, we bargained for, we got it.

The... the court approved that and the Congress approved that.

And I... I... personally I've looked at all of these cases in recent months.

It's very rare for an intended beneficiary to have language like that.

In any case, as I was saying, my clients have suffered massive losses.

They've been litigating these claims for 25 years.

Everyone has assumed there was waiver of sovereign immunity.

Everyone assumed they're intended beneficiaries.

And we think we should have a forum and a remedy and a right to our day in court.

Justice Stevens: Thank you, Mr. Smiland.

The case is taken under advisement.