        In the United States Court of Federal Claims
                                            No. 14-817C

                                      (Filed: June 29, 2015)

*************************************
                                    *
NORTHERN CALIFORNIA POWER           *
AGENCY, et al.,                     *
                                    *                  Rule 12(b)(1) Motion to Dismiss;
                    Plaintiffs,     *                  Subject Matter Jurisdiction; Rule
                                    *                  12(b)(6) Motion to Dismiss; Failure
v.                                  *                  to State a Claim Upon Which Relief
                                    *                  Can Be Granted; Illegal Exaction
THE UNITED STATES,                  *                  Claim; Section 3407(d), Central
                                    *                  Valley Project Improvement Act.
                    Defendant.      *
                                    *
*************************************

David T. Ralston, Jr., with whom were Jay N. Varon, Frank S. Murray, Jennifer M. Forde,
and Anna S. Ross, Foley & Lardner LLP, Washington, D.C., Michael F. Dean, General
Counsel, Northern California Power Agency, Sacramento, California, Barry E. DeWalt,
Assistant City Attorney, City of Redding, Brita J. Bayless, City Attorney, City of Roseville,
and Richard E. Nosky, Jr., City Attorney, City of Santa Clara, Of Counsel, for Plaintiffs.

P. Davis Oliver, with whom were Benjamin C. Mizer, Principal Deputy Assistant Attorney
General, Robert E. Kirschman, Jr., Director, and Franklin E. White, Jr., Assistant Director,
Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington,
D.C., for Defendant.

                               OPINION AND ORDER ON
                           DEFENDANT’S MOTION TO DISMISS

WHEELER, Judge.

      Plaintiffs Northern California Power Agency (“NCPA”),1 and the cities of Redding,
Roseville, and Santa Clara, California allege an illegal exaction and seek recovery of
payments that they claim were unlawfully assessed and collected by the Bureau of
1
  NCPA is a joint powers agency in California comprised of fifteen members including “municipalities, a
rural electric cooperative, and other publicly-owned entities interested in the purchase, aggregation,
scheduling, and management of electrical energy.” Pl.’s Compl. ¶ 12.
Reclamation under Section 3407(d) of the Central Valley Project Improvement Act
(“CVPIA”), Pub. L. 102-575, 106 Stat. 4600, 4706-4731. Plaintiffs claim that Reclamation
ignores the proportionality mandate in Section 3407(d) of the CVPIA and instead, follows
a revenue-maximizing payment scheme that illegally assesses disproportionate payments
on Plaintiffs to fund fish and wildlife habitat restoration projects within the Central Valley.
On January 20, 2015, counsel for the Government filed a motion to dismiss under Rule
12(b)(1) and Rule 12(b)(6) for lack of subject matter jurisdiction and failure to state a claim
upon which relief can be granted. The Government contends that the Court should dismiss
Plaintiffs’ case because Reclamation acted well within its statutory authority to assess the
disproportionate payments on Plaintiffs and thus, there could be no illegal exaction. The
motion was fully briefed by May 8, 2015 and the Court heard oral argument on June 17,
2015.

        After careful review of the parties’ arguments, the Court concludes that the
Government’s motion is without merit. A mere assertion by the Government that it acted
legally under the statute upon which Plaintiffs base their illegal exaction claim does not
bar Plaintiffs from their right to have their claim adjudicated by the Court. Section 3407(d)
provides a sufficient basis for the Court’s jurisdiction over Plaintiffs’ claim for an illegal
exaction. If the Government violated the proportionality requirement in Section 3407(d),
by necessary implication, the remedy would be a return of the illegal and disproportionate
payments that it assessed upon Plaintiffs. Plaintiffs also adequately pled a claim for an
illegal exaction in their complaint. According to the facts that Plaintiffs present,
Reclamation does not consider proportionality as Section 3407(d) requires. Instead,
Reclamation relies upon a revenue-maximizing scheme that imposes disproportionate
burdens on Plaintiffs, who are required to pay far in excess of what Section 3407(d) allows
them to pay to fund the restoration projects in the Central Valley. These facts, if true, give
rise to an illegal exaction claim. Accordingly, Defendant’s motion to dismiss under Rule
12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6) for failure to state a claim
upon which relief can be granted is DENIED.

                                     Factual Background

       In 1935, Congress created the Central Valley Project to supply water to California
farms and communities for agricultural, municipal and industrial uses due to California’s
scarce water resources. Pl.’s Compl. ¶¶ 2, 4. The Central Valley’s need for water is
significant – it supplies eight percent of the United States’ total agricultural output and one-
quarter of the nation’s food – but annual rainfall does not provide a reliable source of water
for Central Valley farmers. Id.¶ 3. Today, the Central Valley Project is a “network of
dams, reservoirs, canals and aqueducts” and is one of the nation’s largest federal


                                               2
reclamation projects, stretching the length of California’s Central Valley, from the Cascade
Range in the north, to the Kern River in the south. Id. ¶ 1.

        The Central Valley Project is managed by the Bureau of Reclamation
(“Reclamation”) of the United States Department of Interior who oversees approximately
nine million acre-feet of water annually. Id. ¶ 4. “An acre-foot of water is approximately
326,000 gallons” of water. Id. Each year, five million acre-feet of water are delivered by
the Central Valley Project for agricultural purposes. Another 600,000 acre-feet of water
are furnished for municipal and industrial purposes and another 1.2 million acre-feet of
water are dedicated to mitigation and restoration purposes such as fish, wildlife, refuges
and wetlands. Central Valley water districts and farmers, California municipalities, and
other water users (“CVP Water Customers”) pay Reclamation for the water they receive.
Id. ¶ 5.

        The delivery of much needed water to farms, businesses and residents is not the only
benefit from the Central Valley Project. The dams built as part of the Central Valley
Project allow the production of hydroelectric power. Id. ¶ 6. Reclamation, acting through
the Department of Energy Western Area Power Administration (“Western”), sells the
hydroelectric power created from the Central Valley Project. Id. Plaintiffs, among others
(“CVP Power Customers”), contract with Western to receive the electric power and pay
Western for the power they purchase. Id. ¶ 7. In addition to paying for the water and power
they receive, CVP Water Customers and CVP Power Customers also pay the Government
for the “allocated proportional reimbursable costs of building, operating and maintaining
the [Central Valley Project] (‘CVP Repayment Costs’).” Id. CVP Water Customers pay
more than three-fourths of the CVP Repayment Costs while CVP Power Customers pay
for less than one quarter. Id. ¶¶ 7, 9-10 (approximately 22-24 percent each fiscal year for
CVP Power Customers and more than 75 percent for CVP Water Customers).

        In 1992, to offset the environmental impacts from the Central Valley Project,
Congress passed the CVPIA. As part of the CVPIA, Congress created a fund designated
as the “Restoration Fund” to restore the fish and wildlife habitats within the Central Valley
Project. In order to raise money for the Restoration Fund projects, the CVPIA requires
CVP Water Customers and CVP Power Customers to contribute payments assessed by
Reclamation. Id. ¶¶ 1, 8. The contributions from CVP Water Customers and CVP Power
Customers include the additional annual mitigation and restoration payments that are at
issue in this case. Id. ¶ 35. Besides the additional annual mitigation and restoration
payments, Congress also contemplated four other sources of revenue streams to be
deposited into the Restoration Fund: (1) “additional mitigation and restoration charges in
connection with renewal of certain long-term water contracts”; (2) revenues realized by
Reclamation “as a result of water transfers and the water pricing reforms included in the
                                             3
CVPIA”; (3) “per acre-foot surcharges on [Central Valley Project] water delivered to
entities receiving water from the Friant Division of the [Central Valley Project]”; and (4)
money donated to the Restoration Fund by non-federal entities. Id. ¶¶ 29-34.

        From the five possible sources of revenue streams, Reclamation can collect up to
$50 million for the Restoration Fund as appropriated by Congress each year. Id. ¶ 29.
However, Reclamation is subject to five limitations when collecting funds. First, the
CVPIA mandates that the additional annual mitigation and restoration payments cannot
exceed $30 million measured on a three-year rolling average. Second, payments assessed
against the CVP Water Customers cannot exceed $6.00 per acre-foot, adjusted for inflation,
for agricultural water sold and delivered by the Central Valley Project and $12.00 per acre-
foot, adjusted for inflation, for municipal and industrial water sold and delivered by the
Central Valley Project. Id. ¶¶ 38-40. Third, Reclamation is required to reduce the
additional annual mitigation and restoration payments imposed on Central Valley Project
customers who use the water for agricultural purposes by taking into account their ability
to pay for such charges. Fourth, Reclamation is required to reduce the annual ceiling for
additional annual mitigation and restoration payments to $15 million once it completes the
fish, wildlife, and habitation mitigation and restoration actions specified in Section 3406
of the Act. Finally, Reclamation is required to consider proportionality under Section
3407(d): “[t]he amount of the mitigation and restoration payment made by Central Valley
Project water and power users, taking into account all funds collected under this title, shall,
to the greatest degree practicable, be assessed in the same proportion, measured over a ten-
year rolling average, as water and power users’ respective allocations for repayment of the
Central Valley Project.” Id. ¶¶ 41-43 (emphasis in original).

        Since the inception of the Restoration Fund in 1992, Reclamation has sought to
maximize revenue from the additional annual mitigation and restoration payments by
seeking to collect the statutory cap of $30 million, adjusted for inflation, from both water
and power users. Reclamation does not consider proportionality. See Pl.’s Compl., Ex. 4.
(chart). Instead, Reclamation calculates the difference between what it expects to receive
from CVP Water Customers and $30 million, and then assesses that difference to Plaintiffs.
Since water payments are capped at $6.00 per acre-foot and $12.00 per acre-foot, when
water deliveries are low, Reclamation’s disregard of the proportionality requirement in the
statute leads to a disproportionate burden on Plaintiffs because they are required to make
up the difference even if it would exceed their proportion of the CVP Repayment Costs.
Id. ¶ 52. Recently, with California in a severe drought and with water deliveries dwindling,
Reclamation has required Plaintiffs to pay approximately 40.5 percent of the $30 million
Reclamation is allowed to collect from the additional annual mitigation and restoration
payments, an increase of approximately 16-20 percent from Plaintiffs’ proportion of the
CVP Repayment Costs. In 2014, it is estimated that CVP Power Customers will pay up to
                                              4
60 percent of the total additional annual mitigation and restoration payments, and in 2015,
it is estimated they could pay as much as 75 percent of the total. According to Plaintiffs,
the disproportional assessment of the Restoration Fund payments has caused CVP Power
Customers to pay more than $120 million in excess charges. Id. ¶¶ 10-11. Plaintiffs now
seek reimbursement of the $120 million in Restoration Fund payments that they claim were
assessed by Reclamation in violation of Section 3407(d)’s proportionality provision.

                                           Analysis

       I. Standards for Decision

        When deciding a motion to dismiss for lack of subject matter jurisdiction under Rule
12(b)(1), the Court “accepts as true all uncontroverted factual allegations in the complaint,
and construes them in the light most favorable to the plaintiff.” Estes Exp. Lines v. United
States, 739 F.3d 689, 692 (Fed. Cir. 2014). The Court’s task in considering a jurisdictional
challenge is a limited one, and considers not whether the plaintiff will ultimately prevail,
but “whether the claimant is entitled to offer evidence to support the claims.” Forest Prods.
Nw., Inc. v. United States, 62 Fed. Cl. 109, 120 (2004). The plaintiff has the burden of
proof to establish subject matter jurisdiction by a preponderance of the evidence. Estes
Exp. Lines, 739 F.3d at 692.

       For a Rule 12(b)(6) motion, plaintiffs need only assert “sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). A claim is plausible on its face when “the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. Granting a motion under Rule 12(b)(6) is “appropriate
only when it is beyond doubt that the plaintiff can prove no set of facts in support of his
claim [that] would entitle[] him to relief.” Fireman v. United States, 44 Fed. Cl. 528, 537
(1999) (quoting Ponder v. United States, 117 F.3d 549, 552-53 (Fed. Cir. 1997)).

       II. The Court Has Jurisdiction Over Plaintiffs’ Illegal Exaction Claim.

        Under the Tucker Act, the Court can hear any claim that is “founded either upon the
Constitution, or any Act of Congress or any regulation of an executive department, or upon
any express or implied contract with the United States, or for liquidated or unliquidated
damages in cases not sounding in tort.” 28 U.S.C. § 1491. It is well established that under
the Tucker Act, the Court can hear claims “made for recovery of monies that the
government has required to be paid contrary to law.” Areolineas Argentinas v. United
States, 77 F.3d 1564, 1572 (Fed. Cir. 1996) (defining an illegal exaction claim). An illegal
exaction claim may be maintained where “the plaintiff has paid money over to the
                                               5
Government, directly or in effect, and seeks return of all or part of that sum that was
improperly paid, exacted, or taken from the claimant in contravention of the Constitution,
a statute, or a regulation.” Id. at 1572-73 (internal quotations omitted). Jurisdiction to
recover the exaction is provided when “the exaction is based on an asserted statutory
power,” id. at 1573, and the statute invoked by the plaintiff must provide “either expressly
or by ‘necessary implication,’ that ‘the remedy for its violation entails a return of money
unlawfully exacted,’” Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005).

       The Government contends that because Reclamation could legally assess
disproportionate additional annual mitigation and restoration payments on Plaintiffs under
Section 3407(d), the Court does not have jurisdiction over Plaintiffs’ case. See Def.’s Mot.
to Dismiss at 13, 19-20 (“[P]laintiffs do not have a right to a proportional assessment;
therefore, the statute does not afford them a remedy for the return of monies they were
assessed in excess of their proportional share of the CVP repayment.”). The Government’s
contention is incorrect. If all the Government had to do to defeat jurisdiction over an illegal
exaction claim was to simply assert that the exaction was legal, this Court’s illegal exaction
jurisdiction would be nullified. The Court’s jurisdiction does not rest on whether the
purported exaction was legal. Instead, the Court assumes for the purposes of the motion to
dismiss that Reclamation’s assessment of the additional annual mitigation and restoration
payments was illegal, see Clapp v. United States, 127 Ct. Cl. 505, 509, 117 F. Supp. 576,
578 (1954) (“In the discussion of the question of jurisdiction, we assume that there was no
legal authority in the Maritime Administration to demand or receive the $7,500.”), and asks
what would be the explicit or implicit remedy for the Government’s violation of the statute,
see Norman, 429 F.3d at 1095. Here, by necessary implication, the remedy would be a
return of the payments that were assessed to CVP Power Customers in violation of Section
3407(d)’s proportionality provision.

        Even though Section 3407(d) does not contain an express statement that the remedy
for violating the statute’s proportionality provision is a return of the money paid over to
the Government, the lack of express money-mandating language in the statute does not
defeat Plaintiffs’ illegal exaction claim. See, e.g., Cyprus Amax Coal Co. v. United States,
205 F.3d 1369, 1373 (Fed. Cir. 2000) (Court had jurisdiction over an illegal exaction claim
based upon the Export Clause of the Constitution because the language of the clause led
“to the ineluctable conclusion that the clause provides a cause of action with a monetary
remedy.”). Otherwise, the Government could assess any fee or payment it wants from a
plaintiff acting under the color of a statute that does not expressly require compensation to
the plaintiff for wrongful or illegal action by the Government, and the plaintiff would have
no recourse for recouping the money overpaid. Overpayment claims are one of the
quintessential illegal exaction claims, see, e.g., Suwannee S. S. Co. v. United States, 150
Ct. Cl. 331, 335-37, 279 F.2d 874, 876-77 (1960) (the court held that requiring plaintiff to
                                              6
pay $20,000 to the Maritime Administration as a condition to be able to transfer two ships
to a foreign registry was an illegal exaction), and the Court has always had jurisdiction
under the Tucker Act to hear such claims, see Clapp, 127 Ct. Cl. at 513-14, 117 F. Supp.
at 580-81 (finding jurisdiction over plaintiff’s illegal exaction claim to recover $7,500 paid
to the Maritime Administration as a condition for approving the sale of plaintiff’s vessel).
Plaintiffs clearly meet the Norman standard to have their claims adjudicated by this Court.

       III. Plaintiffs Properly Stated a Claim for an Illegal Exaction.

        Plaintiffs also properly stated a claim for an illegal exaction to survive a motion to
dismiss under Rule 12(b)(6). The facts presented in the complaint allege that Plaintiffs
paid money over to Reclamation who acted under the guise of its Section 3407(d) authority
to illegally assess disproportionate additional annual mitigation and restoration payments
on Plaintiffs. See Pl.’s Compl., Ex. 3 (invoice from Western to NCPA). Instead of paying
approximately 22-24 percent for the Restoration Fund as is their proportion of the CVP
Repayment Costs, Plaintiffs have been charged, on average, approximately 40 percent. Id.
¶ 55.

        The Government argues that it is not required to maintain proportionality when it
imposes the additional annual mitigation and restoration payments on CVP Power
Customers. According to the Government, the language in Section 3407(d)(2)(A) “to the
greatest degree practicable” gives Reclamation complete discretion to ignore the
proportionality language in the statute when necessary to collect the full $30 million for
the additional annual mitigation and restoration payments as appropriated by Congress
each year. Def.’s Mot. to Dismiss at 7-8. The appropriations acts do not give Reclamation
the discretion to deviate from Congress’s mandate that Reclamation collect the full $30
million from both water and power users for the additional annual mitigation and
restoration payments. Id. at 18-19 (“Congress directs Reclamation ‘to assess and collect
the full amount of the additional and restoration payments authorized by section 3407(d).’”)
(emphasis added). Accordingly, because payments are capped for water users at $6.00 and
$12.00 per acre-foot, Plaintiffs must make up the difference in order for Reclamation to
comply with the annual appropriations acts. Id.

       Here, whether Reclamation disregarded the proportionality provision in Section
3407(d) for the additional annual mitigation and restoration payments is an issue of fact.
It is entirely plausible under the facts Plaintiffs presented in their complaint that
Reclamation violated Section 3407(d) by imposing a revenue-maximizing scheme on
Plaintiffs, while ignoring proportionality altogether. Though the proportionality provision
in Section 3407(d) appears to give some flexibility to Reclamation in assessing the payment
allocations for water and power users by stating that “all funds collected under this title,
                                              7
shall, to the greatest degree practicable, be assessed in the same proportion, measured over
a ten-year rolling average, as water and power users’ respective allocations for repayment
of the Central Valley Project,” this language does not necessarily give a carte blanche to
the Government to ignore proportionality altogether. Such a reading of Section 3407(d)
would ignore the word “shall” in the provision and render the proportionality limitation a
nullity. Sharp Elecs. Corp. v. McHugh, 707 F.3d 1367, 1373 (Fed. Cir. 2013) (“‘Shall’ is
‘mandatory’ language.”); Sharp v. United States, 580 F.3d 1234, 1238 (Fed. Cir. 2009)
(“We therefore reject its interpretation, which would violate the canon that we must ‘give
effect, if possible, to every clause and word of a statute’ and should avoid rendering any of
the statutory text meaningless or as mere surplusage.”).

        The Court notes that it does not make a decision on whether Reclamation’s
assessment of the additional annual mitigation and restoration payments constituted an
illegal exaction under Section 3407(d). All the Court has decided for the purposes of the
motion to dismiss is that the facts and Plaintiffs’ interpretation of the statute in the
complaint are plausible to support their illegal exaction claim. Accordingly, Plaintiffs have
properly stated a claim for an illegal exaction in their complaint.

                                         Conclusion

       For the foregoing reasons, the Government’s motion to dismiss Plaintiffs’ complaint
for lack of subject matter jurisdiction and for failure to state a claim upon which relief can
be granted is DENIED. Pursuant to Rule 12(a)(4)(A), Defendant shall file its answer to
the complaint within 14 days, on or before July 13, 2015.

       IT IS SO ORDERED.

                                                  s/ Thomas C. Wheeler
                                                  THOMAS C. WHEELER
                                                  Judge




                                              8
