Kansas v. Nebraska
574 U.S. 445 (2015)
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Rule of Law:
In disputes between states over an interstate water compact, a court may order an upstream state that recklessly disregarded a downstream state's rights to disgorge profits gained from its overconsumption of water. Additionally, a court may reform a technical agreement ancillary to the compact when it contains a material error that causes it to conflict with the compact's fundamental terms.
Facts:
- In 1943, Kansas, Nebraska, and Colorado entered into the Republican River Compact to apportion the water from the Republican River Basin.
- Following decades of peaceful administration, Kansas became concerned that Nebraska's increased pumping of groundwater was depleting the river's stream flow in violation of the Compact.
- In 2002, the states signed a Final Settlement Stipulation (Settlement), agreeing that groundwater pumping depleting stream flow would count against a state's allocation and that "imported water" (water brought into the basin from other sources) would not.
- The Settlement established technical "Accounting Procedures" and a "Groundwater Model" to measure water consumption and exclude imported water, such as water Nebraska brings in from the Platte River Basin.
- During the 2005–2006 accounting period, Nebraska overconsumed its water allocation by more than 70,000 acre-feet.
- Nebraska's efforts to reduce consumption leading up to this period were inadequate, despite knowing there was a substantial risk of non-compliance.
- It was discovered that the Accounting Procedures, particularly in dry conditions, erroneously charged Nebraska for using imported Platte River water by treating it as if it were water from the Republican River Basin, an error not understood by the parties when they agreed to the Settlement.
Procedural Posture:
- In 1998, Kansas filed an original action in the U.S. Supreme Court against Nebraska, alleging Nebraska's groundwater pumping violated the Republican River Compact.
- The Supreme Court appointed a Special Master, who sided with Kansas's interpretation; the Court summarily affirmed this finding.
- The states negotiated and signed the Final Settlement Stipulation (Settlement) in 2002 to implement the Compact.
- In 2007, Kansas petitioned the Supreme Court for monetary and injunctive relief, claiming Nebraska substantially exceeded its water allocation in the 2005-2006 accounting period.
- Nebraska filed a counterclaim requesting that the Settlement's Accounting Procedures be modified because they improperly charged the state for using imported water.
- The Supreme Court referred the case to a Special Master, who issued a report recommending that Nebraska pay damages plus partial disgorgement, denying Kansas's request for an injunction, and reforming the Accounting Procedures.
- Both Kansas and Nebraska filed exceptions to the Special Master's report, bringing the matter before the Supreme Court for a final decision on those exceptions.
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Issue:
Does a state's reckless overconsumption of water in violation of an interstate compact warrant a remedy of disgorgement of profits, and may a court modify a flawed technical accounting procedure, agreed to by the states in a settlement, to prevent it from conflicting with the express terms of the compact?
Opinions:
Majority - Justice Kagan
Yes. A state's reckless overconsumption of water under an interstate compact can warrant disgorgement, and a court may modify a flawed ancillary agreement to conform with the compact's terms. Nebraska “knowingly failed” to comply with the Compact by recklessly gambling with Kansas’s water rights. Awarding only actual damages would be an insufficient deterrent because the water was more valuable to Nebraska than to Kansas, allowing Nebraska to profit from its breach. Disgorgement is a proper equitable remedy to deter future violations of a compact, which is federal law. Furthermore, the Court has the equitable power to reform the Accounting Procedures because they contain a material error that causes them to violate the Compact by regulating water from outside the Republican River Basin and depriving Nebraska of its rightful water share. The modification aligns the flawed procedures with the parties' clear intent and the Compact's legal requirements.
Dissenting in part - Justice Thomas
No. Disgorgement is not warranted, and the settlement agreement should not be reformed. This case is fundamentally a contract dispute that should be resolved by ordinary principles of contract law, not broad, undefined equitable powers. Disgorgement is an extraordinary remedy available only for a deliberate breach of contract, and the Special Master expressly found Nebraska's breach was not deliberate, but reckless. The majority's creation of a disgorgement remedy for reckless breach is a novel and unsupported extension of the law. Regarding the Accounting Procedures, the remedy of reformation is only available to correct a mutual mistake in transcribing an agreement, not a mistake in the parties' underlying assumptions about how the agreement would operate. The states bargained for and agreed to these specific procedures; the Court should not now rewrite their deal for them.
Concurring in part and dissenting in part - Chief Justice Roberts
I join the majority's opinion regarding Nebraska's breach and the remedy of partial disgorgement. However, I do not believe the Court's equitable power permits it to alter the Accounting Procedures to which the States agreed. Therefore, I join Justice Thomas's dissent on that issue.
Concurring in part and dissenting in part - Justice Scalia
I join Justice Thomas's opinion in full. I write separately to note my skepticism of modern Restatements of Law, such as the Restatement (Third) of Restitution and Unjust Enrichment relied upon by the Special Master. These treatises often seek to prescribe what the law ought to be rather than describe what it is, and therefore should be used with caution and given no more weight than the recommendations of any respected scholar.
Analysis:
This decision significantly strengthens the Supreme Court's remedial authority in interstate compact disputes, establishing disgorgement as a remedy for reckless, not just deliberate, breaches. This creates a powerful financial deterrent for upstream states that might otherwise find it economically advantageous to overconsume water and simply pay damages. The ruling also affirms the Court's equitable power to reform ancillary technical agreements when they contain material errors that frustrate a compact's core purpose. This prioritizes the substance of a compact over flawed implementation mechanisms, granting the court flexibility to ensure these critical interstate agreements function fairly and effectively over time.
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