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No. 137, Original IN THE Supreme Court of the United States ———— October Term 2014 ———— STATE OF MONTANA, Plaintiff, v. STATE OF WYOMING and STATE OF NORTH DAKOTA, Defendants. ———— SECOND INTERIM REPORT OF THE SPECIAL MASTER (LIABILITY ISSUES) ———— BARTON H. THOMPSON, JR. Special Master Stanford, California December 29, 2014 WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D. C. 20002 TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................ viii LIST OF ABBREVIATIONS ............................... xxi I. INTRODUCTION ..................................... 1 II. THE RECORD .......................................... 3 III. FACTUAL BACKGROUND ..................... 4 A. The Tongue River ................................ 4 B. Tongue River Water Use ..................... 8 1. Wyoming’s use of the Tongue River ............................................... 9 2. Montana’s use of the Tongue River ........................................................ 10 C. The Tongue River Reservoir ............... 12 IV. LEGAL BACKGROUND .......................... 14 A. The Yellowstone River Compact ......... 14 1. Key provisions of the Compact ...... 14 2. Difficulties in administering the Compact .......................................... 18 B. Western Water Law ............................ 18 C. The Northern Cheyenne Compact ...... 22 V. PROCEDURAL HISTORY ....................... 24 A. Montana v. Wyoming, 131 S. Ct. 1765 (2011) ................................................... 25 B. Subsequent Pre-Trial Proceedings ..... 26 1. Wyoming’s 2011 motion for partial summary judgment ........................ 27 (i) ii TABLE OF CONTENTS—Continued Page 2. Montana’s claims under Article V(B) ................................................. 28 3. Montana’s voluntary dismissal of its Powder River Basin claims ....... 30 4. Wyoming’s 2013 Motion for Summary Judgment ...................... 30 5. Montana’s 2013 Motion for Partial Summary Judgment ...................... 31 C. The Trial .............................................. 31 1. In limine motions ........................... 31 2. Trial Proceedings ........................... 34 VI. SUMMARY OF THE ISSUES .................. 35 A. Notice ................................................... 36 B. Pre-1950 Shortages in Montana ......... 36 C. Post-1950 Wyoming Diversions and Storage ................................................. 38 D. Impact at the Stateline ....................... 39 E. Intrastate Regulation .......................... 39 F. Injury to Montana Appropriators ....... 40 VII. ANALYSIS ................................................ 40 A. The Appropriate Standard of Proof .... 40 B. The Need for Caution in Restricting State Practices ..................................... 44 C. Notice ................................................... 47 iii TABLE OF CONTENTS—Continued Page 1. The Compact requires Montana to notify Wyoming when it needs water for pre-1950 appropriative rights under Article V(A) ............... 47 a) The language of the Compact ... 49 b) Previous practice of the States .. 54 c) Notice does not need to take any particular form or contain any particular information other than Montana’s water shortage 58 d) The date of notice is critical in determining Wyoming’s liability, if any .......................................... 62 e) Exceptions to the notice require- ment ........................................... 65 2. Factual findings ............................. 66 a) Wyoming is entitled to summary judgment for 1982, 1985, 1992, 1994, and 1998 .......................... 68 (1) 1981, 1982, and 1985 .......... 69 (2) 1992, 1994, and 1998 .......... 72 b) Trial evidence ............................ 73 (1) 1981 ...................................... 75 (2) 1982, 1985, 1992, and 1994. 79 (3) 1987-1989 ............................. 80 (4) 2000-2003 ............................. 82 iv TABLE OF CONTENTS—Continued Page (5) 2004 ...................................... 88 (6) 2006 ...................................... 94 3. Conclusions ..................................... 97 D. Shortages of Water for Pre-1950 Rights in Montana ............................... 99 1. Tongue River Reservoir storage rights............................................... 99 a) Factual timeline ........................ 100 b) Relevant Compact provisions ... 108 c) Relevant appropriation law ...... 111 (1) Wyoming storage law ........... 114 (2) Montana storage law ........... 116 (3) The Montana State Water Project .................................. 124 d) Analysis ..................................... 129 (1) Montana’s storage right under the Compact .............. 129 (a) Is Montana limited to the volume of stored water that was actually marketed to individual users in 1950? ................. 133 (b) Can Montana store more than 32,000 af in a water year? ................................ 138 v TABLE OF CONTENTS—Continued Page (2) Impact of the 1999 Reservoir expansion ............................. 141 (3) The Tongue River Reservoir operating rules ..................... 144 (4) Storage rights of the Northern Cheyenne Indian Tribe ..................................... 157 e) Conclusions ............................... 161 2. Direct-flow rights ........................... 162 a) Montana’s evidence ................... 163 (1) The Book demand model ..... 164 (2) Call letters ............................ 171 (3) Storage releases ................... 172 (4) Testimony of water users ..... 173 (5) Testimony of Montana’s principal water managers ... 174 b) Conclusions ............................... 175 E. Post-1950 Uses in Wyoming ............... 176 1. Direct diversions of water for post- 1950 uses ........................................ 178 a) Use of post-1950 water in 2004 and 2006 .................................... 179 b) Post-1950 water use during the notice period .............................. 183 c) Conclusions ............................... 187 vi TABLE OF CONTENTS—Continued Page 2. Post-1950 Storage .......................... 187 a) Compact Reservoirs ................... 189 (1) 2004 post-1950 storage ........ 191 (2) 2006 post-1950 storage ........ 193 b) Fivemile, Wagner, and Padlock Recovery Reservoirs ................... 193 c) Other Wyoming reservoirs ........ 196 d) Conclusions ............................... 199 3. CBM-related groundwater extrac- tion .................................................. 200 a) Can CBM-related groundwater extraction violate the Compact? 201 b) The Compact’s requirements..... 208 c) Analysis of the evidence and expert testimony ........................ 211 4. Summary ......................................... 220 F. Impact at the Stateline ....................... 220 G. Affirmative Defenses ........................... 221 1. Intrastate regulation in Montana . 222 2. Injury to Montana appropriators .. 224 VIII. FUTURE PROCEEDINGS AND MATERIALITY ......................................... 227 IX. RECOMMENDATIONS ........................... 231 vii TABLE OF CONTENTS—Continued APPENDIX Page Appendix A: Proposed Order ......................... A-1 Appendix B: Yellowstone River Compact, Pub. L. No. 82-231, 65 Stat. 663 (1951) ....... B-1 Appendix C: Maps of the Tongue River Watershed ..................................................... C-1 Appendix D: Post-1950 Water Consumption in Wyoming ................................................... D-1 Appendix E: Post-1950 Storage in Wyoming During 2004 .................................................. E-1 Appendix F: Summary of Findings Regard- ing the Impact of Wyoming Post-1950 Uses on Stateline Flows in 2004 ........................... F-1 Appendix G: Definition of Key Water Terms G-1 Appendix H: Trial Witnesses ......................... H-1 Appendix I: Docket Sheet ............................... I-1 viii TABLE OF AUTHORITIES FEDERAL CASES Page(s) Addington v. Texas, 441 U.S. 418 (1979) ................................... 43 Alabama v. North Carolina, 560 U.S. 330 (2010) ............................. 54, 57, 53 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................... 27, 68 Arizona v. California, 298 U.S. 558 (1936) ................................... 19 373 U.S. 546 (1963) ............................... 158, 229 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ................................... 27 City of Los Angeles v. Lyons, 461 U.S. 95 (1983) ..................................... 41 Colorado v. Kansas, 320 U.S. 383 (1943) ................................... 42 Colorado v. New Mexico, 459 U.S. 176 (1982) ................................... 230 467 U.S. 310 (1984) ................................... 41-42 Connecticut v. Massachusetts, 282 U.S. 660 (1931) ................... 41, 42, 228, 229 Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) ................................... 32 DeFabio v. East Hampton Union Free School Dist., 623 F.3d 71 (2d Cir. 2010) .. 69 Eastman Kodak Co v. Southern Photo Materials Co., 273 U.S. 359 (1927) .......... 177 ix TABLE OF AUTHORITIES—Continued Page(s) Hinderlider v. La Plata River & Cherry Creek Ditch Co., 304 U.S. 92 (1938) ..................................... 19 Hunt v. Cromartie, 526 U.S. 541 (1999) ................................... 68 Idaho v. Oregon, 444 U.S. 380 (1980) ................................... 159 J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557 (1981) ........................ 177 Kansas v. Colorado, 206 U.S. 46 (1907) ......................................... 203 514 U.S. 673 (1995)