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O'Neill v. United States

Citation: 25 ELR 20873
No. No. 93-17154, 50 F.3d 677/40 ERC 1586/(9th Cir., 03/14/1995)

The court holds that of a water service contract between the U.S. Bureau of Reclamation and a private California water district does not obligate the Bureau to deliver the full contractual amount of Central Valley Project (CVP) water to the district when the Bureau cannot deliver that water consistently with the Endangered Species Act (ESA) and the Central Valley Project Improvement Act (CVPIA). In 1992, the CVPIA amended the CVP's authorizing statute and directed the Bureau to dedicate some CVP water for implementing certain fish, wildlife and habitat restoration measures. This requirement, along with the U.S. Fish and Wildlife Service listings of certain fish species under the ESA, required the Bureau to reduce the amount of water supplied to the district by 50 percent. The court first holds that on its face, the contract unambiguously disclaims any liability for damages in the event the federal government is unable because of a water shortage or "any other causes" to supply water to the distsrict. The phrase "any other causes" is a catchall phrase that does not explicitly include any particular causes, and the contract's provision allowing the district to renegotiate the contract to reflect changes in reclamation law does not render that phrase ambiguous. Unavailability of CVP water resulting from subsequent valid legislative mandates such is a shortage by reason of "any other causes."

The court holds that the extrinsic evidence the district proffered on interpreting the contract is not the kind of evidence that Uniform Commercial Code (UCC) § 2-202 renders admissible. Government statements in news releases and feasibility reports allegedly evidencing an intent contrary to the contract's language are not relevant to determining a usage of trade under UCC § 1-205(2) or establishing a course of performance under UCC § 2-208. The court also refuses to consider statements of government officials that the district argues create an express warranty that water would be available to fulfill the contract, because the parole evidence rule excludes statements offered to contradict a clear contract term in a final expression of agreement. The court holds that even if the remarks of high government officials were admissible to contradict the contract's clear liability limitation, they would not amount to an express warranty. Congratulatory statements, predictions, and expressions of opinions do not amount to an express warranty because they cannot reasonably be considered a guarantee that the full contracted amount of water would always be available. The court also holds that the district court correctly concluded that explanatory recitals in the contract do not amount to a warranty of availability, because the contract itself provides no exception to the contract's explicit limitation of the government's liability for water shortages.

The court holds that the district could not prevail even if the water service contract did obligate the government to supply the full contract amount to the district, because the contract is not immune from subsequently enacted statutes. Nothing in the contract surrenders in "unmistakable terms" Congress' sovereign power to enact legislation. The CVPIA's modification of the water use priority marks a shift in reclamation law, and nothing in the contract precludes such a shift.

The court holds that the contract's liability limitation neither contains nor operates as a liquidated damages clause. Rather, it excuses the government from full performance of the contract when a water shortage prevents it from delivering the entire contractual amount of water. The court rejects the district's argument that the limited liability provision is unenforceable because the essential purpose the contract's remedy provision has failed. The remedy provided for in the contract is a reduction in the price paid for water deliveries and there is no evidence that the district has been deprived of this remedy. The court also holds that the contract's liability limitation is not unconscionable. The district court correctly found that the contract was the product of bargaining by sophisticated parties who foresaw that circumstances might limit the government's ability to deliver the contracted quantity of water in the future. The contract contains no overly harsh cost or allocation of risk that was not justified given the circumstances under which the contract was made. The court further holds that the mere fact that the liability limitation is a standard provision that has appeared in other water service contracts does not render it unconscionable. Nor is that provision void as against policy, because the government's adherence to the ESA's and the CVPIA's statutory mandates is not an effort to willfully injure landowners' property.

Finally, the court holds that it was within the district court's discretion to refuse to evaluate the merits of the Bureau's compliance with the ESA and the CVPIA. The district court properly determined that a parallel case filed in another federal district court would adequately address that issue and that it would be judicially inefficient to have two parallel cases proceeding simultaneously. Moreover, such a decision will enable a comprehensive judicial resolution of the allocation problem which affects many parties other than the district.

Counsel for Plaintiffs
William M. Smiland
Smiland & Khachigian
One Bunker Hill
601 N. 5th St., 7th Fl., Los Angeles CA 90071
(213) 891-1010

Counsel for Defendant
Robert L. Klarquist
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Choy, Farris and Brunetti, JJ.: