Kansas v. Nebraska,
574 U.S. ___ (2015)

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Justia Opinion Summary

In 1943, Congress approved a Compact between Kansas, Nebraska, and Colorado to apportion the “virgin water originating in” the Republican River Basin. In 1998, Kansas filed an original action in the Supreme Court contending that Nebraska’s increased groundwater pumping was subject to the Compact to the extent that it depleted stream flow in the Basin. The Court agreed. Negotiations resulted in a 2002 Settlement, which identified the Accounting Procedures by which the states would measure stream flow depletion, and thus consumption, due to groundwater pumping. The Settlement reaffirmed that “imported water,” brought into the Basin by human activity, would not count toward consumption. In 2007, Kansas claimed that Nebraska had exceeded its allocation. Nebraska responded that the Accounting Procedures improperly charged it for imported water and requested that the Accounting Procedures be modified. The Court appointed a Special Master, whose report concluded that Nebraska “knowingly failed” to comply, recommended that Nebraska disgorge part of its gains in addition to paying damages, and recommended denying an injunction and reforming the Accounting Procedures. The Supreme Court adopted the recommendations. Nebraska failed to establish adequate compliance mechanisms, given a known substantial risk that it would violate Kansas’s rights; Nebraska was warned each year that it had exceeded its allotment. Because of the higher value of water on Nebraska’s farmland than on Kansas’s, Nebraska could take Kansas’s water, pay damages, and still benefit. The disgorgement award is sufficient to deter future breaches. Kansas failed to demonstrate a “cognizable danger of recurrent violation” necessary to obtain an injunction. Amending the Accounting Procedures is necessary to prevent serious inaccuracies from distorting intended apportionment.

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .

SUPREME COURT OF THE UNITED STATES

Syllabus

KANSAS v. NEBRASKA et al.

on exceptions to report of special master

No. 126, Orig. Argued October 14, 2014—Decided February 24, 2015

In 1943, Congress approved the Republican River Compact, an agreement between Kansas, Nebraska, and Colorado to apportion the “virgin water originating in” the Republican River Basin. 57Stat. 87. In 1998, Kansas filed an original action in this Court contending that Nebraska’s increased groundwater pumping was subject to regulation by the Compact to the extent that it depleted stream flow in the Basin. This Court agreed. Ensuing negotiations resulted in the 2002 Final Settlement Stipulation (Settlement), which established mechanisms to accurately measure water and promote compliance with the Compact. The Settlement identified the Accounting Procedures, a technical appendix, as the tool by which the States would measure stream flow depletion, and thus consumption, due to groundwater pumping. The Settlement also reaffirmed that “imported water”—that is, water brought into the Basin by human activity—would not count toward a State’s consumption. Again, the Accounting Procedures were to measure, so as to exclude, that water flow.

In 2007, following the first post-Settlement accounting period, Kansas petitioned this Court for monetary and injunctive relief, claiming that Nebraska had substantially exceeded its water allocation. Nebraska responded that the Accounting Procedures improperly charged the State for using imported water and requested that the Accounting Procedures be modified accordingly. The Court appointed a Special Master. His report concludes that Nebraska “knowingly failed” to comply with the Compact, recommends that Nebraska disgorge a portion of its gains in addition to paying damages for Kansas’s loss, and recommends denying Kansas’s request for an injunction. In addition, the report recommends reforming the Accounting Procedures. The parties have filed exceptions.

Held

1. Proceedings under this Court’s original jurisdiction are “basically equitable in nature,” Ohio v. Kentucky, 410 U. S. 641 , and in exercising that jurisdiction over a controversy between two States, the Court may “mould the process [to] best promote the purposes of justice.” Kentucky v. Dennison, 24 How. 66, 98. Where the States have negotiated a Compact, the Court is confined to declaring rights under and enforcing its terms. But within those bounds, the Court may invoke equitable principles to devise “fair … solution[s]” to compact violations. Texas v. New Mexico, 482 U. S. 124 . And where Congress has approved the Compact so that it counts as federal law, see Cuyler v. Adams, 449 U. S. 433 , the Court may, consistent with the Compact’s express terms, exercise its full authority to remedy violations of, and promote compliance with, the agreement, see Porter v. Warner Holding Co., 328 U. S. 395 . Pp. 6–9.

2. The Special Master’s determination that Nebraska “knowingly failed” to comply with its Settlement obligations, his recommendation that Nebraska pay Kansas an additional $1.8 million in disgorgement, and his recommendation that Kansas’s request for injunctive relief be denied are all adopted. The parties’ exceptions are overruled. Pp. 9–20.

(a) Nebraska “knowingly failed” to comply with its Settlement obligations, and disgorgement is an appropriate remedy for Nebraska’s breach. Pp. 10–17.

(i) As the Special Master found, Nebraska failed to put adequate compliance mechanisms in place in the face of a known substantial risk that it would violate Kansas’s rights. Nebraska’s argument that it could not have anticipated unprecedented drought conditions fails, because its efforts to comply would have been inadequate absent the luckiest of circumstances. Nor can the State find refuge in the Compact’s retrospective compliance calculation methods, because it had been warned each year leading up to the final compliance check that it had exceeded its allotment. The Court therefore agrees with the Master that Nebraska “knowingly exposed Kansas to a substantial risk” of receiving less water than it was entitled to under the Compact. Report 130. In other words, Nebraska recklessly gambled with Kansas’s rights. Pp. 10–14.

(ii) Because Nebraska’s benefit from its breach exceeded the $3.7 million loss Kansas suffered, the Special Master recommended that Nebraska disgorge part of its additional gain. Nebraska contends that disgorgement is improper because it did not act “deliberately,” which it argues is required for disgorgement in a private contract suit. But disgorgement is appropriate where one State has recklessly gambled with another State’s rights to a scarce natural resource. This Court has said that awarding actual damages in a compact case may be inadequate to deter an upstream State from ignoring its obligations where it is advantageous to do so. Texas v. New Mexico, 482 U. S., at 132. Here, Nebraska took full advantage of its favorable geographic position. And because of the higher value of water on Nebraska’s farmland than on Kansas’s, Nebraska could take Kansas’s water, pay damages, and still benefit. This Court’s remedial authority extends to providing a remedy capable of stabilizing the Compact and deterring future breaches, and a disgorgement award appropriately does so here. Pp. 14–17.

(b) Contrary to Kansas’s contentions, the Master’s partial disgorgement award is sufficient to achieve those goals. The “flexibility inherent in equitable remedies,” Brown v. Plata, 563 U. S. ___, ___, allows the Court to order partial disgorgement if appropriate to the facts of the particular case, cf. Kansas v. Colorado, 533 U. S. 1 . The Special Master properly took into account Nebraska’s incentives, past behavior, and especially its more recent successful compliance efforts to determine that a small disgorgement award suffices. For related reasons, Kansas has failed to demonstrate a “cognizable danger of recurrent violation” necessary to obtain an injunction. United States v. W. T. Grant Co., 345 U. S. 629 . Pp. 17–20.

3. The Special Master’s recommendation to amend the Accounting Procedures so that they no longer charge Nebraska for imported water is adopted, and Kansas’s exception is overruled. As the Special Master found, in dry conditions, the Accounting Procedures improperly treat Nebraska’s use of imported water as if it were use of Basin water. Nothing suggests that anyone seriously thought the Accounting Procedures would systematically err in this way. Rather, the Procedures’ designers assumed that they had succeeded in their goal to implement a strict demarcation between virgin and imported water.

Kansas argues that in spite of these failures, the States must be held to the bargain they struck. That is the ordinary rule. But two special considerations warrant conforming the Accounting Procedures to the Compact and the Settlement. First, the remedy is necessary to prevent serious inaccuracies from distorting the States’ intended apportionment of interstate waters, as reflected in those documents. Doing so is consistent with past instances where this Court opted to modify a technical agreement to correct material errors in the way it operates and thus align it with the compacting States’ intended apportionment. Second, this remedy is required to avert an outright breach of the Compact—and so a violation of federal law. As written, the Accounting Procedures go beyond the Compact’s boundaries and deprive Nebraska of its compact rights. The Master’s proposed “5-run formula” solves this problem by excluding imported water from the calculation of each State’s consumption. Given Kansas’s failure despite ample opportunity to devise another solution or to demonstrate flaws in this one, as well the long and contentious history of this case that casts doubt on the States’ ability to come to an agreement themselves, the Court adopts the Master’s solution. Pp. 20–28.

Exceptions to Special Master’s Report overruled, and Master’s recommendations adopted.

Kagan, J., delivered the opinion of the Court, in which Kennedy, Ginsburg, Breyer, and Sotomayor, JJ., joined, and in which Roberts, C. J., joined as to Parts I and III. Roberts, C. J., and Scalia, J., filed opinions concurring in part and dissenting in part. Thomas, J., filed an opinion concurring in part and dissenting in part, in which Scalia and Alito, JJ., joined, and in which Roberts, C. J., joined as to Part III.

Primary Holding

When a state knowingly fails to adhere to a compact with another state, it may be required to disgorge any benefits it has received through non-compliance as well as paying damages. However, an injunction to adhere to the compact is not necessary unless there is a cognizable danger of a recurrent violation.

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