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Under the sovereign acts doctrine, the United States when sued as a contractor cannot be held liable for an obstruction to the performance of the particular contract resulting from its public and general acts as sovereign. The doctrine is based on the theory that the two characters which the government possesses as a contractor and as a sovereign cannot be thus fused; nor can the United States while sued in the one character be made liable in damages for their acts done in the other. However, even if the sovereign acts defense applies, it does not follow that discharge will always be available, for the common-law doctrine of impossibility imposes additional requirements before a party may avoid liability for breach. Specifically, performance by the government is excused under the sovereign acts defense only when the sovereign act renders the government's performance impossible.
Congress authorized the construction of the Ventura River Project (Project) on March 1, 1956. The Project provides the water supply for farmland irrigation and municipal, domestic, and industrial uses in Ventura County, California. The Project comprises, among other things, the Casitas Dam, Casitas Reservoir, Robles Diversion Dam, and the Robles-Casitas Canal. More specifically, the Project combines water of Coyote Creek and Ventura River in its principal feature, the Casitas Reservoir, generally called Lake Casitas. Lake Casitas itself is located on Coyote Creek and is formed by Casitas Dam. Approximately sixty percent of the Project's water comes from Coyote Creek. The remaining forty percent of the Project's water comes from the nearby Ventura River. Ventura River water is diverted via the Robles Diversion Dam into a four and a half mile long canal (the Robles-Casitas Canal), which carries the water to Lake Casitas.
On March 7, 1956, the United States and Casitas entered into a contract providing for the construction of the Project by the United States in exchange for a commitment by Casitas to repay the construction costs over a forty-year period, as well as all operation and maintenance costs. Additionally, the contract provided in Article 4 that Casitas "shall have the perpetual right to use all water that becomes available through the construction and operation of the Project." The contract also required Casitas to apply to the State of California to appropriate the water for the Project. State water permits were issued to Casitas on May 10, 1956, and the Project was completed and transferred to Casitas for operation in 1959. In August, 1997, almost forty years after the construction of the project, the National Marine Fisheries Service (NMFS) listed the West Coast steelhead trout as an endangered species in the Project watershed. Section 9 of the Endangered Species Act (ESA) makes it illegal to "take" any species listed as endangered under the Act. To avoid ESA section 9 liability, the Bureau of Reclamation (BOR) sought a biological opinion by the NMFS (BiOp) pursuant to section 7 of the ESA. BOR issued a directive on May 2, 2003 advising Casitas that it was obligated to comply with the requirement of the BiOp compelled Casitas to: (1) construct a fish ladder facility, which is located at the intersection of the Ventura River, Robles Diversion Dam, and the Robles-Casitas Canal; and (2) divert water from the Project to the fish ladder, resulting in a permanent loss to Casitas of a certain amount of water per year. Under protest Casitas complied, but on January 26, 2005, Casitas filed suit against the government alleging that these actions constituted a breach of contract and a compensable Fifth Amendment taking of its water. Trial court dismissed the complaint and entered final judgment for the United States.
Did the United States’ enforcement of the ESA breach the repayment contract?
Casitas argued that the sovereign acts doctrine does not apply because the ESA did not make it impossible for the government to perform its contractual obligations. Casitas contended that alternative performance was available to the government--a more modest fish ladder or a system for fish passage other than the fish ladder (e.g., fish trapping and trucking) that would have met ESA requirements without requiring a loss of water to Casitas. Casitas asserted that the absence of a specific directive in the ESA regarding the means of ensuring fish preservation and the availability of an alternative approach to accomplish that goal without accompanying water loss defeated the sovereign acts doctrine. The court did not agree. Casitas' argument necessarily assumed that the sovereign act consists solely of the ESA and that NMFS' issuance of the BiOp and the BOR decision to adopt the BiOp, which the parties concede required Casitas to construct the fish ladder, were not part of a sovereign act. Casitas' interpretation of what constitutes a sovereign act was too narrow. The NMFS is an agency within the Commerce Department's National Oceanic and Atmospheric Administration that implements the ESA for marine species. The BOR ws a federal agency within the Department of Interior. There was no difference between situations when Congress either delineates the implementing details within the statute or when Congress leaves these details to the discretion of an agency. In either case, the governmental action was sovereign in character and the sovereign acts doctrine may be invoked. As such, the trial court correctly concluded that Casitas' argument failed because it made an impermissible distinction "between statutes whose implementing details have been spelled out by Congress and statutes whose implementation Congress has left for administrative determination." The BiOp opinion and the decision of the BOR to adopt the BiOp opinion were sovereign acts. As such, it was impossible for the government to perform its contractual requirements under Article 4. Therefore, the government is not liable for breaching Article 4 of the contract.