                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


PURE WAFER INCORPORATED, a                No. 14-15940
Delaware corporation, successor in
interest to Exsil, Inc., a Delaware          D.C. No.
corporation,                              3:13-cv-08236-
          Plaintiff-counter-defendant-         JAT
                              Appellee,

                  v.                        OPINION

PRESCOTT, CITY OF, an Arizona
municipal corporation; MARLIN
KUYKENDALL; CRAIG MCCONNELL;
ALAN CARLOW, in his capacity as a
Member of the Prescott City
Council; JIM LAMERSON, in his
capacity as a Member of the
Prescott City Council; STEVE BLAIR,
in his capacity as a Member of the
Prescott City Council; CHARLIE
ARNOLD, in his capacity as a
Member of the Prescott City
Council; CHRIS KUKNYO, in his
capacity as a Member of the
Prescott City Council; LEN
SCAMARDO, in his capacity as a
Member of the Prescott City
Council; MARK NIETUPSKI, in his
capacity as Public Works Director
of the City of Prescott; JOEL
2           PURE WAFER V. CITY OF PRESCOTT

 BERMAN, in his capacity as Utilities
 Manager of the City of Prescott,
     Defendants-counter-claimants-
                          Appellants.


        Appeal from the United States District Court
                 for the District of Arizona
     James A. Teilborg, Senior District Judge, Presiding

           Argued and Submitted April 14, 2016
                San Francisco, California

                   Filed January 10, 2017

    Before: Diarmuid F. O’Scannlain, Richard R. Clifton,
            and N. Randy Smith, Circuit Judges.

               Opinion by Judge O’Scannlain;
         Partial Concurrence and Partial Dissent by
                     Judge N.R. Smith
               PURE WAFER V. CITY OF PRESCOTT                           3

                            SUMMARY*


                          Contract Clause

    The panel affirmed in part and reversed in part the district
court’s permanent injunction in favor of plaintiff, entered
following a bench trial, and remanded in an action brought
under 42 U.S.C. § 1983 alleging that the City of Prescott,
Arizona violated the Contract Clause of the Constitution
when it declared that its sewage treatment plant would no
longer accept wastewater discharged by plaintiff’s metal
refinishing plant.

    This controversy centered on the fluoride concentration
in plaintiff’s effluent, and the City’s enactment of an
Ordinance imposing limits on such concentration. Plaintiff
alleged that application of the Ordinance to plaintiff’s
industrial wastewater discharges constituted an
unconstitutional impairment of its contract rights, in violation
of the Contract Clauses of the federal and state constitutions.

    Reversing the district court’s judgment on the Contract
Clause claims, the panel held that the City had not impaired
the obligation of its contract with plaintiff, because the
Ordinance has not altered the ordinary state-law remedies to
which plaintiff would otherwise be entitled if it successfully
proved a breach of contract. The panel stated that the City
might very well have breached its contract, but that did not
necessarily mean it has violated the Contract Clauses of the
federal and state constitutions.

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4           PURE WAFER V. CITY OF PRESCOTT

     The panel held that the judgment for plaintiff could be
sustained on the alternative ground that the City breached its
contract with plaintiff. The panel held that the City had
previously agreed to accept such effluent as the parties knew
plaintiff would need to discharge in order to maintain a viable
business and that the City agreed to bear the financial risk
that state-initiated regulatory changes would make complying
with such promise more costly than it was when the parties
entered into an agreement. The panel held that enforcing the
Ordinance against plaintiff would eviscerate the benefit of
plaintiff’s bargain; the City could not do so without putting
itself in breach of the agreement. The panel stated that on
remand the district court should decide the appropriate
remedy. The panel further ordered that the district court’s
injunction forbidding enforcement of the Ordinance against
plaintiff would remain in effect during subsequent stages of
litigation.

    Concurring in part and dissenting in part, Judge N.R.
Smith concurred with the majority’s conclusion that plaintiff
did not have a claim under the Contract Clause of the United
States or Arizona constitutions. Judge Smith dissented from
the majority’s sua sponte decision to reach plaintiff’s
alternative claims that the City breached its agreement. Judge
Smith stated that the circumstances warranted remand to
permit the district court (or an Arizona court) the first
opportunity to address the merits of the breach of contract
claim.
            PURE WAFER V. CITY OF PRESCOTT                 5

                        COUNSEL

Robert A. Shull (argued), Andrew L. Pringle, Kenneth A.
Hodson, and Nicole F. Bergstrom, Dickinson Wright PLLC,
Phoenix, Arizona, for Defendants-Counter-Claimants-
Appellants.

Jeffrey D. Gross (argued), Scottsdale, Arizona; K. Layne
Morrill and Stephanie L. Samuelson, Morrill & Aronson
PLC, Phoenix, Arizona; for Plaintiff-Counter-Defendant-
Appellee.


                        OPINION

O’SCANNLAIN, Circuit Judge:

    We must decide whether the City of Prescott, Arizona
violated the Contract Clause of the Constitution when it
declared that its sewage treatment plant would no longer
accept wastewater discharged by one of its customers, a large
metal refinishing plant.

                              I

    This dispute sees the City of Prescott at odds with Pure
Wafer, Inc., a corporate resident of Prescott, over contract
interpretation. Pure Wafer’s grievances run from the
constitutional—the City has violated our nation’s
fundamental charter—to the mundane—the City has betrayed
specific promises the two made to each other during happier
days.
6           PURE WAFER V. CITY OF PRESCOTT

                              A

    Pure Wafer runs a facility in Prescott for cleaning silicon
wafers used by clients like IBM, Intel, and Motorola. Called
“test and monitor wafers,” they play a crucial role in the
production processes those companies employ to build
microprocessors and computer chips. Pure Wafer performs
what is called a “reclaim” service: its role is to remove oxide
nitrites from the wafers after they pass through a given phase
of the production process, clean them, polish them, and send
them back to its clients so they can be reused later on. The
wafers range in diameter from four inches to one foot.

    Pure Wafer does a large volume of business, running the
36,000-square-foot Prescott facility twenty-four hours a day,
seven days a week, at around ninety-five percent capacity.
All that reclamation activity generates a lot of
wastewater—up to 195,000 gallons per day, although in
practice it has been less—which Pure Wafer then discharges
into the City’s sewer lines. The sewer lines carry Pure
Wafer’s effluent into the City’s Airport Water Reclamation
Facility (“AWRF”), one of three City-owned wastewater
treatment plants in Prescott that process and treat effluent
from the City’s sewers. The AWRF then discharges treated
effluent either to golf courses or into recharge basins to
replenish the City’s aquifer.

   This controversy centers on the fluoride concentration in
Pure Wafer’s effluent, and the City’s recent enactment of an
Ordinance imposing limits on such concentration.
             PURE WAFER V. CITY OF PRESCOTT                   7

                               B

    In 1997 the City entered into a contract, called the
Development Agreement (“the Agreement”), with Pure
Wafer’s predecessor in interest, a company called Exsil. In
2007 Pure Wafer purchased Exsil and acquired all of its rights
and obligations under the Agreement. Like the parties, we
refer to both entities as “Pure Wafer” for simplicity’s sake.

    At the time of the Agreement, Pure Wafer owned plants
in Sulphur, Oklahoma and San Jose, California. The
Agreement was a way for the City to entice Pure Wafer to
build its third facility in the Prescott Airpark, which the City
expected would create jobs, stimulate economic activity, spur
infrastructure improvements, and generate tax revenue. In
exchange, the City agreed to provide Pure Wafer with the
sewage infrastructure it needed to conduct its reclamation
business, plus (among other things) tax and zoning breaks to
make it easier for Pure Wafer to expand the facility if it so
desired. Pure Wafer constructed the facility in 1997, and
expanded it in 2002, at a total cost of roughly $35 million.

                               C

    Three provisions of the Agreement have figured centrally
in the parties’ arguments during the course of this litigation.

    First, the Agreement’s section 4.2, together with Exhibit
F, provide that the City may not raise Pure Wafer’s “sewer
usage fees” above a certain rate schedule, so long as the
fluoride content in Pure Wafer’s effluent remains at or below
100 mg/L. Exhibit F recites that Pure Wafer’s fluoride
content has a “typical” value of 50 mg/L and a “maximum”
of 100 mg/L. In addition, Section 4.2 obligates the City to
8            PURE WAFER V. CITY OF PRESCOTT

provide up to 195,000 gallons of “sewer capacity” per day,
and to bear the cost of “augment[ing] such facilities” as
necessary to “accept or accommodate” Pure Wafer’s effluent.

    Second, section 9.1 provides that Pure Wafer “will
operate the Facility . . . in accordance with all local, state, and
federal environmental regulations.”

    Third, section 14.7, an integration clause, states that
“[t]his Agreement and the exhibits hereto constitute the entire
agreement between the parties,” “supersed[ing]” “all prior
and contemporaneous agreements, representations,
negotiations and understandings.”

                                D

    Pure Wafer insists that when it negotiated the Agreement
with the City, its most important objective was to make sure
that its ability to operate the facility would not be thwarted by
future changes in City regulations. As Pure Wafer tells it, it
“didn’t want to . . . build a plant that could be . . . rendered
useless at any time by the City,” and so it took precautions
“to make sure that it had a locked up contract and a position
on water, sewer and effluent requirements.” To that end,
Pure Wafer claims that it “made sure that the City was fully
aware of what [the facility’s] requirements were.”

    In particular, Pure Wafer avers that it was anxious to
safeguard its ability to discharge effluent containing up to
100 mg/L of fluoride, and Pure Wafer maintains that the City
represented that discharging fluoride up to that level “would
be acceptable.” In fact, earlier in the negotiations Pure Wafer
had informed the City that its fluoride levels sometimes ran
as high as 150 mg/L, but at the City’s request, Pure Wafer
             PURE WAFER V. CITY OF PRESCOTT                     9

agreed to design the Prescott facility so that its fluoride
contents would not exceed 100 mg/L, a commitment reflected
in the maximum fluoride value listed in the Agreement’s
Exhibit F. In all the years it has run the Prescott facility, Pure
Wafer’s discharges have never exceeded 100 mg/L in fluoride
concentration, and have averaged about 40 mg/L.

    Pure Wafer’s representatives testified that the company’s
concern over the prospect of fluoride regulation stemmed in
part from its experience in San Jose, where it ran a
reclamation facility prior to opening the one in Prescott. In
the 1980s San Jose apparently passed an ordinance “similar”
to the Prescott Ordinance at issue in this case, which required
Pure Wafer to “put a lot of infrastructure in to deal with
fluorides,” the cost of which prevented Pure Wafer from
expanding the facility. The real problem, Pure Wafer
explains, was that it had no Development Agreement with
San Jose; so much the wiser, Pure Wafer continues, it took
steps to “communicate[] [its] needs to the City of Prescott
and . . . actually got it inputted into a Development
Agreement, the contractual obligation.”

    For its part, the City also claims that it harbored concerns
about effluent composition in general and fluoride levels in
particular. As noted above, the City had balked at Pure
Wafer’s initial report that its fluoride levels were sometimes
as high as 150 mg/L. In addition, at public hearings prior to
the Agreement’s adoption, City officials stated that Pure
Wafer would be required to comply with City codes
regarding pretreatment of effluent discharge. At that same
meeting, a Pure Wafer representative reassured the public that
the company “did not want to pollute the air, water and
ground, [and] that a system would be designed that would
10          PURE WAFER V. CITY OF PRESCOTT

allow discharge from their plant to be pure enough to go into
the city’s wastewater treatment plant.”

                              E

     Subsequent changes in state and federal environmental
regulations set off the chain of events leading to this
litigation. Above all, in 1999 the Arizona Department of
Environmental Quality (“ADEQ”)—the State’s
environmental regulatory agency—required the City to obtain
an Aquifer Protection Permit (“APP”), which, in turn,
imposed a host of requirements on the City, including the
requirement that any discharge exiting the City’s AWRF
could no longer exceed 4.0 mg/L of fluoride, measured at the
point of discharge from the AWRF.

    That was a big change. Prior to the ADEQ-imposed APP
regime, the City operated the AWRF pursuant to a
Groundwater Protection Permit, which only required the City
to sample the groundwater monitoring wells in the recharge
basins in the City’s aquifer, one or more steps downstream
from the AWRF’s point of discharge.               Under the
Groundwater Protection Permit, the fluoride concentration in
the recharge basins could not exceed 4.0 mg/L. The
important point is that the impact of Pure Wafer’s effluent on
samples taken from the recharge basins is less pronounced
than it is with respect to samples taken at the AWRF, for at
least two reasons. First, the recharge basins take in effluent
discharged from at least two different sources: not only from
the AWRF, but also from the larger Sundog Wastewater
Treatment Plant. The AWRF’s effluent has a higher fluoride
concentration than Sun Dog’s, but the two streams of effluent
are commingled in the recharge basins, diluting the relative
importance of the AWRF’s fluoride levels. Second, some
             PURE WAFER V. CITY OF PRESCOTT                  11

effluent leaving the AWRF is used to water golf courses and
does not actually enter the recharge basins. Illustrating the
combined importance of these circumstances, it appears that
Pure Wafer’s effluent has basically had no effect on the
fluoride concentration in the aquifer, as from 1997 through
2013, the monitoring well readings consistently reported
fluoride concentrations of less than 0.4 mg/L, or one tenth of
the amount allowed under the Groundwater Protection
Permit.

    ADEQ’s decision to shift the monitoring location to the
AWRF’s point of discharge had serious consequences. In
particular, the City represents that the AWRF, “like most
publically owned treatment works, is not designed to remove
fluoride and other types of industrial pollutants” from the
wastewater that flows into it, and that, in turn, it sends along
to the aquifer. The upshot is that, in order for the City to
comply with the APP’s 4.0 mg/L fluoride limit at the
AWRF’s point of discharge, one of two changes had to occur:
either the AWRF must be equipped to remove fluoride from
wastewater that enters it; or the fluoride content of
wastewater must be reduced before it ever enters the AWRF.
The latter option is known as “pretreatment.”

                               F

    In 2004 ADEQ sent the City a Notice of Violation
alleging seven dates during the previous year on which the
AWRF’s fluoride levels exceeded the maximum allowed
under the City’s APP. The Notice directed the City to
“submit a written response describing the corrective actions
that have been taken to resolve the violations.” In response,
the City in 2005 began to develop a pretreatment program and
12            PURE WAFER V. CITY OF PRESCOTT

to explore what local fluoride limits would help ensure that
the City complied with its APP.

    Nevertheless, when ADEQ conducted a “pretreatment
compliance audit” of the City in 2007, it concluded that “[t]he
City does not have valid control mechanisms in place to
regulate the discharges” from the City’s two categorical
industrial users, including Pure Wafer. ADEQ declared it
“imperative” that the City “establish an approved
pretreatment program.” Under state law, the City’s APP
violations could result in ADEQ fining the City up to $25,000
per day. A.R.S. § 49-262(C).

    In 2012 ADEQ issued another Notice of Violation to the
City, which still had not established a pretreatment program.
The basis of the violation was again excessive fluoride
concentration in effluent discharged from the AWRF. This
time the City and ADEQ entered into a Consent Order, which
mandated that within thirty days the City “shall adopt and
submit for ADEQ’s review and approval the Pre-Treatment
Program.”

                                   G

    In due course, the City passed Ordinance No. 4856-1313
in 2013.1 As relevant here, the Ordinance imposes limits on
the pollutants that industrial users, like Pure Wafer, are
permitted to discharge into the City’s sewer system. Most
important for this case, the Ordinance declares that
Significant Industrial Users (of which Pure Wafer is one)


     1
      Pure Wafer has not questioned the City’s authority to enact the
Ordinance. The City relies on a state statute, see Ariz. Rev. Stat. § 49-
391, as well as Article I, Section 3 of its own Charter.
               PURE WAFER V. CITY OF PRESCOTT                          13

“shall not discharge or cause to be discharged at any entry
point” to a publically owned treatment works, including the
AWRF, “any wastewater containing in excess of” 16.3 mg/L
of fluoride.2 The Ordinance also requires industrial users like
Pure Wafer to get a permit from the City and, to the extent
necessary, to “pretreat” their wastewater prior to
discharge—that is, to ensure, at their own expense, that their
wastewater complies with the 16.3 mg/L limit on fluoride
concentration. The Ordinance threatens those who violate it
with injunctive action, civil penalties, and criminal
prosecution. ADEQ approved the City’s pretreatment
program as established by the Ordinance.

    The City estimates that if it were required to pretreat
wastewater entering the AWRF so that it complies with the
APP’s fluoride limitations, it would cost the City $2.7 million
in capital outlay and $8.5 million annually. Pure Wafer has
not yet conducted a study, but its preliminary estimate
suggested that pretreatment of its own effluent would require
the company to spend $1 million to $4 million in capital
outlay and $360,000 to $720,000 annually.

                                    H

     Not surprisingly, Pure Wafer was not pleased with such
developments. Claiming that it will likely close the facility
if forced to comply with the Ordinance, Pure Wafer brought
this lawsuit against the City (and certain of its officers in their
official capacities) under 42 U.S.C. § 1983, seeking
declaratory and injunctive relief, or in the alternative,


    2
      It appears that there were or are at least six Significant Industrial
Users in Prescott, including Pure Wafer. Each received an identical letter
from the City directing them to comply with the Ordinance.
14           PURE WAFER V. CITY OF PRESCOTT

damages. Pure Wafer alleged that by enacting the Ordinance
the City had “impair[ed] the obligation” of its contract with
Pure Wafer, in violation of Article I, section 10 of the federal
Constitution, as well as the analogous Contract Clause of the
Arizona Constitution; and that the City, by enacting the
Ordinance, had committed at least two different breaches of
contract, as well as a breach of the implied covenant of good
faith and fair dealing. The City counterclaimed for a
declaratory judgment that the Agreement in fact obligated
Pure Wafer to comply with the Ordinance.

                                1

    The district court held a hearing on Pure Wafer’s motion
for a preliminary injunction, which by consent of the parties
the court converted into a trial on the merits, to be bifurcated
into a liability phase and a damages phase. The parties also
agreed that the City would not enforce the Ordinance against
Pure Wafer during the pendency of this litigation, including
any appeal.

                                2

    After trial on the merits, the district court entered
judgment for Pure Wafer, refusing to accept the City’s
contention that the pretreatment ordinance is an
environmental regulation of the sort Pure Wafer agreed to
obey. Instead, believing the Ordinance to be a thinly veiled
“cost-shifting regulation,” the district court held that the City,
through the Ordinance, had impaired the obligation of its
contract with Pure Wafer, in violation of the Contract Clauses
                PURE WAFER V. CITY OF PRESCOTT                            15

of the federal and state constitutions.3 The district court
awarded Pure Wafer a permanent injunction. The court
declined to rule on Pure Wafer’s alternative claims for breach
of contract and breach of the implied covenant of good faith
and fair dealing, and deemed it unnecessary to proceed to the
damages phase of the trial. In addition, the district court held
that Pure Wafer was entitled to attorneys’ fees, but did not set
an amount until several months later. The court denied the
City’s counterclaim.

                                      3

    The City timely appealed the district court’s judgment.
The district court had jurisdiction under 28 U.S.C. §§ 1331,
1343, and 1367,4 and we have jurisdiction under 28 U.S.C.
§ 1291.

                                      II

    The City first argues that the district court erred in
holding that the City, by enacting the Ordinance, had violated
the Contract Clause. The Contract Clause of the Constitution
declares that “No State shall . . . pass any . . . Law impairing
the Obligation of Contracts.” U.S. Const. art. I, § 10, cl. 1.


     3
       The district court and both parties treat the Contract Clause of the
Arizona Constitution, Ariz. Const. art. II, § 25, as identical in scope to its
federal counterpart. Accordingly, like them, we confine our discussion to
the federal Contract Clause.
    4
      Our Circuit has previously held that § 1983 provides individuals
with a cause of action to assert violations of the Contract Clause. S. Cal.
Gas Co. v. City of Santa Ana, 336 F.3d 885, 887 (9th Cir. 2003) (per
curiam). We note an apparent split of authority on the question. See, e.g.,
Crosby v. City of Gastonia, 635 F.3d 634, 640–41 (4th Cir. 2011).
16          PURE WAFER V. CITY OF PRESCOTT

The Contract Clause applies to contracts entered into by a
State, Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 135–39
(1810), as well as by municipalities, and such contracts may
be “impaired” within the meaning of the Clause by municipal
ordinances as well as by state legislation, St. Paul Gaslight
Co. v. City of St. Paul, 181 U.S. 142, 148 (1901).

    In order to decide whether the City can prevail over the
district court’s judgment under the Contract Clause, it is
necessary first to set forth the differences between a city or
State’s breach of a contract, on the one hand, and a city or
State’s impairment of such contract’s obligation, on the other.

                              A

    The Agreement is a contract between a municipality and
a private party. In disputes involving government contracts,
it can sometimes be hard to tell whether the governmental
entity has “impaired the obligation” of its contract or has
simply breached its contract with the private party. But the
distinction is crucial, not least because conflating the two
concepts would risk making a federal constitutional case out
of even the most garden variety public contract dispute,
transforming the Contract Clause into a font of state contract
law. See Horwitz-Matthews, Inc. v. City of Chicago, 78 F.3d
1248, 1250 (7th Cir. 1996) (“It would be absurd to turn every
breach of contract by a state or municipality into a violation
of the federal Constitution.”). In fact, the Supreme Court
long ago rejected “the proposition that wherever it is asserted
on the one hand that a municipality is bound by a contract to
perform a particular act and the municipality denies that it is
liable under the contract to do so, thereby an impairment of
the obligations of the contract arises in violation of the
Constitution of the United States.” St. Paul Gaslight Co.,
             PURE WAFER V. CITY OF PRESCOTT                    17

181 U.S. at 149. Such proposition, the Court explained,
“amounts only to the contention that every case involving a
controversy concerning a municipal contract is one of Federal
cognizance, determinable ultimately in this court. Thus, to
reduce the proposition to its ultimate conception is to
demonstrate its error.” Id.

    So how do we tell the difference between a government’s
impairing the obligation of its contract and simply breaching
it? At the most basic level, it cannot be said to have
“impaired” the obligation of its contract if such “obligation”
remains in full force and effect. And our cases establish that
the “obligation” of a contract is the judicially enforceable
duty it imposes upon each party either to perform or else to
submit to the courts’ remedial powers, which will often take
the form of an order to pay damages, but may encompass
other remedies as well (and thus Holmes may have been too
hasty in proclaiming that “[t]he duty to keep a contract at
common law means a prediction that you must pay damages
if you do not keep it, — and nothing else.” Oliver Wendell
Holmes, Jr., The Path of the Law, 10 Harv. L. Rev. 457, 462
(1897)).

    Given that principle, state action cannot be said to
“impair” the obligation of a contract so long as it leaves both
parties free to obtain a court-ordered remedy (typically
damages) in the event that either of them fails to perform as
promised. And that principle holds true whether state action
affects a contract between private parties or, as here, a
contract to which the State itself is a party. See, e.g., Univ. of
Haw. Prof’l Assembly v. Cayetano, 183 F.3d 1096, 1102 (9th
Cir. 1999) (“[T]he substantial impairment test turns on
whether the State has used its law-making powers not merely
to breach its contractual obligations, but to create a defense
18           PURE WAFER V. CITY OF PRESCOTT

to the breach that prevents the recovery of damages.”);
Crosby, 635 F.3d at 642 n.7 (“If the offended party retains the
right to recover damages for the breach, the Contracts Clause
is not implicated; if, on the other hand, the repudiation goes
so far as to extinguish the state’s duty to pay damages, it may
be said to have impaired the obligation of contract.”);
Horwitz-Matthews, 78 F.3d at 1251 (“The essence . . . of a
breach of contract is that it triggers a duty to pay damages for
the reasonably foreseeable consequences of the breach. If the
duty is unimpaired, the obligation of the contract cannot be
said to have been impaired.”).

    The Supreme Court’s Contract Clause cases likewise
reflect the deep connection between obligation and remedy,
the upshot being that a State does not “impair the obligation”
of a contract so long as it leaves contracting parties free to
pursue the ordinary state-law remedies in the event of breach.
As the Court explained in General Motors Corp. v. Romein,
“[t]he obligation of a contract consists in its binding force on
the party who makes it.” 503 U.S. 181, 189 (1992) (quoting
McCracken v. Hayward, 43 U.S. (2 How.) 608, 612 (1844)).
Thus, a State may “trigger Contract Clause scrutiny” if it
enacts “changes in the laws that make a contract legally
enforceable,” for example, by eroding “the remedies available
under a contract” in a way that “convert[s] an agreement
enforceable at law into a mere promise.” Id. But by contrast,
a State does not violate the Contract Clause if its challenged
action does “not change the legal enforceability of the . . .
contracts,” id. at 190, a condition a State satisfies so long as
it does not purport to relieve a party—including, most
               PURE WAFER V. CITY OF PRESCOTT                         19

especially, itself—of its duty either to perform or to submit to
a court-ordered remedy.5

    In a similar vein, United States Trust Co. of New York v.
New Jersey explained that “[c]ontract rights are a form of
property and as such may be taken for a public purpose
provided that just compensation is paid,” and thus “[t]he
States remain free to . . . abrogate such contractual rights,
upon payment of just compensation.” 431 U.S. 1, 19 n.16, 29
n.27 (1977).

                                   B

    In light of the principles outlined above, it is clear to us
that the City has not impaired the obligation of its contract
with Pure Wafer, because the Ordinance has not altered the
ordinary state-law remedies to which Pure Wafer would
otherwise be entitled if it successfully proves a breach of
contract. The City might very well have breached its
contract—a question we discuss later in this opinion—but
that does not necessarily mean it has violated the Contract
Clause of the federal Constitution.




    5
      To be sure, the Contract Clause does not automatically approve state
action that merely alters the remedies available on a contract but stops
short of wiping them out entirely; as Justice Cardozo observed (with some
understatement), the “dividing line” between obligation and remedy “is at
times obscure,” and some purely remedial changes may be too “oppressive
and unnecessary” to pass muster under the Contract Clause. W.B.
Worthen Co. v. Kavanaugh, 295 U.S. 56, 60, 62 (1935). We need not
linger over such difficulties, however, because as we explain, here the
City has not attempted to tinker at all with the remedies Pure Wafer would
be entitled to obtain in the event it proves a breach of contract.
20            PURE WAFER V. CITY OF PRESCOTT

    Indeed, Pure Wafer included a claim for simple breach of
contract in its suit against the City, alleging that “Pure Wafer
cannot comply with the Ordinance without incurring
substantial costs which the Development Agreement allocated
to the City,” and specifically requested “such amount of
damages as Pure Wafer may establish at any trial of this
action as flowing from the City’s breach.”

    Crucially for our purposes here, the City has never
asserted the Ordinance as a defense that would have the legal
effect of discharging the City’s duty to perform and would
thereby relieve the City of its legal obligation—established
by the contract—to pay damages or some other remedy as a
consequence of its non-performance.6

    But we need not speculate about what legal effect the
Ordinance might have on Pure Wafer’s entitlement to judicial
remedies, because the City has by now several times
expressly represented that the Ordinance does not operate to
dissolve (that is, impair) its binding obligation to perform
whatever it promised to do under the Development
Agreement. For instance, as the City put it in briefing
following the district court’s hearing on Pure Wafer’s motion
for a preliminary injunction:

         Pure Wafer . . . is suing the City in this case
         for breach of contract and is seeking money
         damages. . . . The City is defending this claim
         based upon the plain terms of the
         Development Agreement. If Pure Wafer


     6
      In fact, as noted above, the district court had ordered the trial
proceedings bifurcated into a liability phase and a damages phase,
something to which the City voluntarily agreed.
               PURE WAFER V. CITY OF PRESCOTT                           21

         prevails upon its breach of contract claims,
         the Court will presumably assess damages, to
         the extent damages are proven and
         appropriate. In any event, the Pretreatment
         Ordinance would not frustrate recovery.

    Likewise, at the hearing on Pure Wafer’s motion for a
preliminary injunction, the City represented that “[t]his is a
contract dispute as to what the Development Agreement
between plaintiff and the city defendant provides. . . . It’s a
garden-variety contract dispute. . . . They’re seeking
damages for [the City’s] alleged breach of the contract. . . .
They’re asking for damages if they have to comply because
of the breach of contract. . . . The City can respond in money
damages if it loses this case at the end of the day.”7

     Although the City has argued that the Ordinance survives
Contract Clause scrutiny because any impairment was not
substantial, the thrust of that argument was contract based,
i.e. that Pure Wafer “agreed to comply with environmental
regulations,” and that the “cost of regulatory compliance
[was] not a term that was bargained for.” To the extent the
City’s argument could be read otherwise, it should go without
saying that the City is barred from altering its position on the
legal effect of the Ordinance at subsequent stages in this
litigation, thanks to the doctrine of judicial estoppel and
related principles. See Whaley v. Belleque, 520 F.3d 997,

    7
       We also note that the Agreement goes out of its way to state that
“[i]n the event City is in default herein, [Pure Wafer] shall have all legal
and equitable remedies available to it,” and further provides that the
Agreement shall be enforceable “subject to a court’s equitable powers.”
The City has not attempted to cast doubt on those provisions. Hence, in
addition to damages, Pure Wafer may be able to request injunctive relief
or specific performance if it so desires.
22             PURE WAFER V. CITY OF PRESCOTT

1002 (9th Cir. 2008); State v. Towery, 920 P.2d 290, 304
(Ariz. 1996) (in banc).

                                    C

    The City’s analysis persuades us that Pure Wafer does not
have a claim under the Contract Clause. This case has all the
hallmarks of a quintessential contract dispute, and insofar as
the City has attempted to refute Pure Wafer’s claimed rights
under the Agreement—but has not attempted to render such
rights legally unenforceable—it should be treated as a
contract dispute. The district court’s judgment in favor of
Pure Wafer’s Contract Clause claim cannot stand.

                                    III

     Nevertheless, Pure Wafer seeks to protect the judgment
in its favor on the alternative claim that the City has simply
breached the contractual obligations it undertook in the
Development Agreement. Although the district court did not
rule on this claim outright, it discussed the Agreement at
length, considered extensive trial testimony, and made
sufficient findings of fact and conclusions of law for us to
resolve the scope of the parties’ contractual rights without
need for a remand.8



     8
      Indeed, the district court itself recognized that “[t]he resolution of
the issues in this case hinges on the nature and extent of the City’s
obligations to accept Pure Wafer’s effluent under the terms of the
Agreement.” Those same inquiries overlap substantially with our breach
of contract analysis. Given that the district court, in its Contract Clause
analysis, made sufficient findings of fact to conclude that the City had
breached the contract, we disagree with the dissent that remand is
necessary.
                PURE WAFER V. CITY OF PRESCOTT                            23

    We therefore proceed to the merits,9 mindful that with
respect to any factual findings, “[i]f the district court’s
account of the evidence is plausible in light of the record
viewed in its entirety, the court of appeals may not reverse it
even though convinced that had it been sitting as the trier of



    9
      The dissent argues that because “we have dismissed the only federal
claim before us” we must remand the case back to the district court so that
it might determine whether it should continue to exercise supplemental
jurisdiction over the breach of contract claim under 28 U.S.C. § 1367(a).
Dissent at 33–34. The district court had supplemental jurisdiction, as do
we, because the Contracts Clause claim is a federal question. We
respectfully disagree with our dissenting colleague.

     Section 1367(c) allows a district court to decline to exercise
supplemental jurisdiction for one of four reasons. The district court could
have invoked it and dismissed the state-law breach of contract claim at
any time, but chose not to. And, nothing in this opinion precludes the
district court from invoking § 1367(c) after we remand the case back to it.
The dissent misreads § 1367(c)(3); it only applies when “the district court
has dismissed all claims over which it has original jurisdiction.” (emphasis
added).

     The dissent relies on cases such as Fang v. U.S. to argue we are
improperly usurping the district court’s discretion. Dissent at 36–38
(citing 140 F.3d 1238, 1240 (9th Cir. 1998)). But, we are reviewing a
district court’s merit decision, not instructing the district court on whether
to exercise supplemental jurisdiction. Fang involved a district court’s pre-
trial dismissal of federal claims for lack of jurisdiction, and then a
dismissal of related state claims pursuant to § 1367(c)(3). Id. We
reversed in that case, reinstating some of the federal claims and all of the
state claims, but made clear the district court could reassess whether it
should retain supplemental jurisdiction in the face of the defendant’s
arguments that the state law claims raised novel issues of state law. Id. at
1241–43. Here, we are not dismissing or reinstating any state law claims.
The dissent’s real objection is that we reach the merits of the breach of
contract issue—but that is a separate concern from whether we are
usurping the district court’s § 1367(c) authority.
24           PURE WAFER V. CITY OF PRESCOTT

fact, it would have weighed the evidence differently.”
Anderson v. City of Bessemer, 470 U.S. 564, 573–74 (1985).

                               A

     The Development Agreement specifies that it “shall be
governed by and construed under the laws of the State of
Arizona.” The Arizona Supreme Court has made clear that
“in Arizona, a court will attempt to enforce a contract
according to the parties’ intent.” Taylor v. State Farm Mut.
Auto. Ins., 854 P.2d 1134, 1138 (Ariz. 1993) (in banc).
Moreover, under Arizona law, “a court may consider
surrounding circumstances, including negotiation, prior
understandings, and subsequent conduct.” Id. at 1139.
Further, courts applying Arizona contract law are not required
to find ambiguity in the contractual language before they may
entertain extrinsic evidence bearing on the parties’ intents.
Id. at 1140. Rather, we are instructed “first [to] consider[] the
offered evidence and, if [we] find[] that the contract language
is ‘reasonably susceptible’ to the interpretation asserted by its
proponent, the evidence is admissible to determine the
meaning intended by the parties.” Id. Such practice is
permissible so long as the evidence “is being offered to
explain what the parties truly may have intended.” Id.

                               B

    Pure Wafer’s theory is that the City promised to accept its
effluent so long as its non-pretreated fluoride content remains
at or below 100 mg/L, and to bear the financial risk of any
future occurrence that would prevent the City from doing so,
               PURE WAFER V. CITY OF PRESCOTT                         25

including future changes in law.10 To Pure Wafer’s mind, the
Agreement gave it a “contractual . . . right to discharge at
[contractually specified] rates up to 195,000 gallons per day
of effluent containing up to 100 mg/L of fluoride,” and what
is more, “[t]he parties agreed that . . . if it became necessary
to modify the sewer system so as to permit Pure Wafer to
discharge [such] effluent, the City would pay for that
modification cost.” In Pure Wafer’s view, ADEQ’s
inauguration of the APP regime has made it “necessary to
modify the sewer system” in order to ensure Pure Wafer’s
ability to discharge its effluent in the manner it believes the
Agreement protects—and, Pure Wafer continues, recent
regulatory changes are among the future contingencies whose
risk the City agreed to shoulder. In other words, Pure Wafer
believes it struck a bargain with the City which “allocated to
the City the risk of potential future consequences of its
acceptance of . . . Pure Wafer’s effluent,” including the risk
that later-enacted legislation or regulation would require the
City to pretreat such effluent as a condition of continuing to
accept it.




    10
       The dissent contends that this breach of contract theory was never
articulated by Pure Wafer in its Amended Complaint. Dissent at 40–41.
It accuses us of inventing a new theory for Pure Wafer. Yet, Pure Wafer’s
Amended Complaint articulates this theory several times. ¶¶ 3, 127, 142.
Its two breach of contract claims incorporate preceding allegations and
allege that by failing to exempt Pure Wafer from the Ordinance, as
required by sections 9.2 and 14.4 of the Agreement, the City breached its
contract. ¶¶ 149, 154. The logical conclusion from the Amended
Complaint is that by trying to impose a new, lower discharge limit via the
Ordinance, rather than exempting Pure Wafer, the City breached the
Agreement. Of course, had the City exempted Pure Wafer it would not be
in breach—a point no one contests.
26          PURE WAFER V. CITY OF PRESCOTT

    Pure Wafer effectively describes the Agreement as a so-
called “regulatory contract,” in which a “regulated entity
contractually promises the government that [it] will provide
or do something that is not otherwise clearly required by
extant law. In return, the government contractually promises
the regulated entity to maintain the regulatory regime set out
in the contract. If the government breaches its promise of
regulatory stability, it must pay contract damages.” David
Dana & Susan P. Koniak, Bargaining in the Shadow of
Democracy, 148 U. Pa. L. Rev. 473, 475 (1999).

    Such contracts are hardly novel. To take one prominent
example, United States v. Winstar Corp. involved contracts
between the federal government and certain thrift institutions,
and the Supreme Court held that in such contracts the
government had promised to regulate the thrifts in a specific
manner, and to pay them damages if it later changed the
regulatory landscape in a way that caused them financial
harm. 518 U.S. 839, 871 (1996) (plurality opinion) (“The
thrifts do not claim that the [federal government] purported
to bind Congress to ossify the law in conformity to the
contracts . . . . They simply claim that the Government
assumed the risk that subsequent changes in the law might
prevent it from performing, and agreed to pay damages in the
event that such failure to perform caused financial injury.”);
id. at 887 (“[T]he Government agreed to . . . indemnify its
contracting partners against financial losses arising from
regulatory change.”); id. at 916 (Breyer, J., concurring)
(explaining that the class of contract at issue amounts to “a
promise that obliges the government to hold a party harmless
from a change in the law that the government remains free to
make”); id. at 918 (“The thrifts demonstrate that specific
promises were made to accord them particular regulatory
treatment for a period of years, which, when abrogated by
               PURE WAFER V. CITY OF PRESCOTT                          27

subsequent legislation, rendered the Government liable for
breach of contract.”); id. at 923–24 (Scalia, J., concurring in
the judgment) (“[I]t is clear from the contract in question that
the Government . . . had assumed the risk of a change in its
laws.”).11 As Justice Souter explained, “[c]ontracts like this
are especially appropriate in the world of regulated industries,
where the risk that legal change will prevent the bargained-
for performance is always lurking in the shadows.” Id. at 869
(plurality opinion).12

    The contracts at issue in Winstar operated in the same
manner as Pure Wafer alleges the Development Agreement
operates here. That is, Pure Wafer claims that the Agreement
requires the City to give it the benefit of (among other things)
whatever fluoride regulations were in force at the time the
Agreement was entered into, and that insofar as newly
enacted laws (including the Ordinance) frustrate the City’s
ability to do so, the City is in breach of the Agreement and
must submit to whatever remedy the court deems appropriate.




    11
       See also, e.g., Amino Bros. Co. v. United States, 372 F.2d 485, 491
(Ct. Cl. 1967) (“The Government cannot make a binding contract that it
will not exercise a sovereign power, but it can agree in a contract that if
it does so, it will pay the other contracting party the amount by which its
costs are increased by the Government’s sovereign act.”).
    12
       See also, e.g., Hughes Commc’ns Galaxy, Inc. v. United States,
998 F.2d 953, 959 (Fed. Cir. 1993) (“[Government] contracts routinely
include provisions shifting financial responsibility to the government for
events which might occur in the future. That some of these events may be
triggered by sovereign government action does not render the relevant
contractual provisions any less binding than those which contemplate third
party acts, inclement weather and other force majeure.” (footnote
omitted)).
28           PURE WAFER V. CITY OF PRESCOTT

                               C

    The district court’s findings amply support Pure Wafer’s
position. As the district court recounted, “Pure Wafer
presented undisputed evidence that its operations require the
discharge of effluent with a fluoride concentration above
16.3 mg/L, that it expected at the time of the Agreement to be
able to discharge at concentrations of up to 100 mg/L, that
this right was critical to its negotiations based on its past
experiences with its San Jose facility, and that the financial
viability of the Prescott facility is threatened if it must bear
the pretreatment costs.” Likewise, the district court
concluded that “Pure Wafer was willing to incur the
substantial initial capital investment to construct a reclaim
facility in Prescott only if the City agreed to commit to
maintaining water and sewer services to the facility at the
specifications Pure Wafer needed to productively operate its
facility,” and that “Pure Wafer need only establish that it has
the right to discharge at least 100 mg/L, which it has done.”

    Although the district court did not use the phrase
“regulatory contract” as we did above, the district court’s
findings make unmistakably clear that the parties created
such a contract. As the district court put it, the City cannot
“force Pure Wafer to pay for pretreatment when the City has
contractually agreed to not pass along such costs. The City
must accept Pure Wafer’s effluent as-is and pretreat it at the
City’s own expense.”

     We agree with the district court that the City agreed to
accept such effluent as the parties knew Pure Wafer would
need to discharge in order to maintain a viable business, and
that the City agreed to bear the financial risk that State-
initiated regulatory changes would make complying with
               PURE WAFER V. CITY OF PRESCOTT                          29

such promise more costly than it was when the parties entered
into the Agreement.13 Hence, the City may not force Pure
Wafer to absorb the costs needed to bring the City into line
with the terms of its APP. Enforcing the Ordinance against
Pure Wafer would eviscerate the benefit of Pure Wafer’s
bargain; the City cannot do so without putting itself in breach
of the Agreement.

    Our conclusion is bolstered by representations the City
itself made in a letter to ADEQ in the summer of 2004, in
which the City explained that it had “signed an agreement
with [Pure Wafer] on 2/11/97 allowing them to discharge
Fluoride between 50 mg/l and 100 mg/l” into the City’s
AWRF. And our conclusion derives further support from the
district court’s finding that “[a]s early as 1994, ADEQ
informed the City that its Groundwater Quality Protection
Permit would no longer be sufficient for the operation of the
AWRF,” and that, consequently, the City was “[c]learly . . .
aware at the time it entered into the Agreement that there
existed some level of fluoride concentration that would
require treatment prior to its ultimate discharge,” but had
“inaccurately estimated the particular fluoride concentration
above which treatment (or pretreatment) [would be]
required.” The City’s ability to anticipate stricter discharge
limitations like those ADEQ ultimately passed defeats any
impossibility defense the City might have asserted, because
it means the “non-occurrence” of such regulatory change was
not a “basic assumption on which the contract was made.”
Restatement (Second) of Contracts § 261 (1981); see also id.
§ 264, cmt. a (“With the trend toward greater governmental


    13
       We disagree with the district court’s determination that the City is
obligated to accept Pure Wafer’s effluent “regardless of its fluoride
concentration,” but this error is irrelevant to the outcome of the case.
30           PURE WAFER V. CITY OF PRESCOTT

regulation, . . . parties are increasingly aware of [the] risks
[that new government regulations will frustrate performance],
and a party may undertake a duty that is not discharged by
such supervening governmental actions . . . . Such an
agreement is usually interpreted as one to pay damages if
performance is prevented . . . .”); 12 Joseph M. Perillo,
Corbin on Contracts § 64.10 (rev. ed. 1993) (explaining that
in some cases where post-formation changes in law render
performance illegal, “damages are still available as a remedy,
either because the promisor assumed the risk or for other
reasons”).

                               D

   The City’s most basic counterargument is that the
Ordinance is an “environmental regulation” of the sort Pure
Wafer expressly agreed to obey, in section 9.1 of the
Agreement. “No further analysis is required,” says the City.
We are not persuaded.

    The trouble with the City’s argument is it completely
ignores the context of the parties’ negotiations. As the
district court put it, “Pure Wafer would not construct the
Prescott facility without a commitment from the City that it
could discharge up to 100 mg/L of fluoride,” for it “did not
want to build a Prescott facility that could be ‘rendered
useless at any time by the City.’” Much like the financial
institutions in Winstar, “[i]t would . . . have been madness for
[Pure Wafer] to have engaged in these transactions with no
more protection than the Government’s reading would have
given them, for the very existence of their institutions would
then have been in jeopardy from the moment their agreements
were signed.” 518 U.S. at 910 (plurality opinion).
            PURE WAFER V. CITY OF PRESCOTT                 31

    The district court concluded that “[a]ccording to the
City’s logic, this violation of the Agreement is not a breach
of contract because Pure Wafer agreed not to discharge
effluent in violation of local environmental regulations. But
Pure Wafer neither anticipated nor agreed that it would
comply with cost-shifting regulations cloaked as
environmental regulations.” For the reasons explained above,
we agree with the district court that Pure Wafer was not so
reckless with its own future, and so we cannot accept the
City’s position that by agreeing to section 9.1, Pure Wafer
unwittingly welcomed a Trojan Horse containing within itself
the seeds of destruction of its own business.

    The City also derives no help from the “reserved powers
doctrine,” which holds generally that “the exercise of the
police power cannot be limited by contract for reasons of
public policy; nor can it be destroyed by compromise,” for “it
is beyond the authority of the state or the municipality to
abrogate this power so necessary to the public safety.” N.
Pac. Ry. Co. v. Minnesota, 208 U.S. 583, 598 (1908). Pure
Wafer is not arguing that the City promised never to adopt
regulations limiting the amount of fluoride industrial users
like itself may discharge into the City’s sewer system. And
giving Pure Wafer a contractual remedy for the City’s breach
would not block the City from reducing the amount of
fluoride exiting the City’s AWRF. As the City itself
recognizes, “ultimately the only question is who should pay
the cost of bringing the Facility into compliance with the
amended City Code.” Indeed, the district court found that “if
Pure Wafer does not pretreat its effluent, the City will do so
to comply with its APP. Counsel for the City has suggested
as much to the Court.” The City would not be forced to
surrender any of its sovereign powers if it is held to its
promise to bear the risk that a change in applicable laws
32             PURE WAFER V. CITY OF PRESCOTT

might make performance under the Development Agreement
more costly.

                                     E

     In light of the foregoing, we conclude that while the City
prevails on its appeal of the Contract Clause issue, judgment
for Pure Wafer can be sustained on the alternative ground that
the City has breached its contract with Pure Wafer. We leave
it for the district court on remand to decide the appropriate
remedy.14

                                    IV

   The judgment of the district court is AFFIRMED IN
PART and REVERSED IN PART, and the case is
REMANDED for further proceedings consistent with this
opinion.    The district court’s injunction forbidding
enforcement of the Ordinance against Pure Wafer shall
remain in effect during subsequent stages in this litigation.
Each party shall bear its own costs on appeal.




     14
        Because we affirm the district court’s judgment as to the City’s
liability, we also AFFIRM its denial of the City’s counterclaim. We have
no occasion to examine the City’s objection to the district court’s separate
judgment that Pure Wafer is entitled to attorneys’ fees.

     In addition, Pure Wafer’s two motions for judicial notice, filed April
12, 2016, and April 13, 2016, are GRANTED.
              PURE WAFER V. CITY OF PRESCOTT                       33

N.R. SMITH, concurring in part and dissenting in part:

I. United States and Arizona Constitutional Contract
   Clause Claims

    I concur with the majority’s conclusion that “Pure Wafer
does not have a claim under the Contract Clause” of the
United States or Arizona Constitutions. Maj. Op. 22. Thus, I
agree that the judgment must be reversed and remanded.1

II. Arizona Breach of Contract Claims

    However, I must dissent from the majority’s sua sponte
decision to reach Pure Wafer’s alternative claims that the City
breached the Development Agreement. Instead, we should
remand for the district court (1) to consider whether to
exercise supplemental jurisdiction over the breach of contract
claims, and (2) (if it decides to exercise such jurisdiction) to
make findings of fact as to those claims.

    A. We must allow the district court to assess in the first
       instance whether to exercise its supplemental
       jurisdiction.

    In holding the Contract Clause inapplicable to this case,
we have dismissed the only federal claim before us. Thus,
only claims for breach of contract under Arizona state law
remain. Pure Wafer invoked supplemental jurisdiction over
these claims in the district court but did not plead diversity.
Therefore, the first question must be whether the federal,


    1
        I also agree that the City should continue to be enjoined from
enforcing the Ordinance against Pure Wafer during subsequent stages of
this litigation.
34           PURE WAFER V. CITY OF PRESCOTT

rather than the Arizona state, court should decide the
remaining claims. See Carnegie-Mellon Univ. v. Cohill,
484 U.S. 343, 350 n.7 (1988). The majority errs in failing to
allow the district court to consider in the first instance
whether to exercise its supplemental jurisdiction.

    Although district courts generally have supplemental
jurisdiction over state law claims forming “part of the same
case or controversy” as federal claims, there are a number of
circumstances in which “[t]he district court may decline to
exercise [this] jurisdiction,” including when all federal claims
have been dismissed. See 28 U.S.C. § 1367(a), (c). The
decision is discretionary, and, if one of the § 1367(c)
circumstances is present, “the exercise of discretion [is]
triggered.” Exec. Software N. Am., Inc. v. U.S. Dist. Court for
Cent. Dist. of Cal., 24 F.3d 1545, 1557 (9th Cir. 1994),
overruled on other grounds by Cal. Dep’t of Water Res. v.
Powerex Corp., 533 F.3d 1087 (9th Cir. 2008). Section 1367
plainly vests this discretion with the district court. See
28 U.S.C. § 1367(c); see also Foster v. Wilson, 504 F.3d
1046, 1051 (9th Cir. 2007) (“The decision whether to
continue to exercise supplemental jurisdiction over state law
claims after all federal claims have been dismissed lies within
the district court’s discretion.” (emphasis added)); Exec.
Software, 24 F.3d at 1557 (“[S]ubsection (c) [of § 1367]
requires the district court, in exercising its discretion, to
undertake a case-specific analysis.” (emphasis added)
(quoting H.R. No. 734, 101st Cong. § 29 (1990)));
Imagineering, Inc. v. Kiewit Pac. Co., 976 F.2d 1303, 1309
(9th Cir. 1992) (providing that once all federal claims are
dismissed, the exercise of jurisdiction over state law claims
“is within the discretion of the federal district court”
(emphasis added)), overruled on other grounds by Diaz v.
Gates, 420 F.3d 897, 900 (9th Cir. 2005) (en banc).
             PURE WAFER V. CITY OF PRESCOTT                     35

     Once it dismisses all federal claims before it, a federal
court “must reassess its jurisdiction by engaging in a
pragmatic and case-specific evaluation of the myriad of
considerations that may bear on the determination of whether
to exercise supplemental jurisdiction.” 16 James WM. Moore
et al., Moore’s Federal Practice § 106.66[1] (3d ed. 2016).
Such considerations include “economy, convenience,
fairness, and comity.” Exec. Software, 24 F.3d at 1557
(quoting Imagineering, 976 F.2d at 1309). These factors must
be “weigh[ed] in each case, and at every stage of the
litigation,” City of Chi. v. Int’l Coll. of Surgeons, 522 U.S.
156, 173 (1997) (quoting Carnegie–Mellon, 484 U.S. at 350),
and the district court is in the best position to weigh them, see
Hoeck v. City of Portland, 57 F.3d 781, 785–86 (9th Cir.
1995); 16 Moore, supra § 106.66[3][a]. In my view, an
Arizona court would be better suited to adjudicate Pure
Wafer’s claims based on Arizona law. However, the district
court should make that decision.

     Because the discretion lies with the district court and it is
in the best position to make the decision, several of this
court’s opinions indicate that we should allow the district
court the first opportunity to consider the issue. See Watison
v. Carter, 668 F.3d 1108, 1117 (9th Cir. 2012) (“On remand
[after appellate ruling negated the district court’s basis for
dismissing state law claims], the district court . . . shall decide
anew whether to exercise supplemental jurisdiction.”);
Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1174–75 (9th
Cir. 2002) (“The decision to exercise [supplemental]
jurisdiction remains discretionary with the district court. . . .
We therefore remand for the district court to determine, in the
first instance, whether the application of the Gibbs standard
permits the exercise of supplemental jurisdiction, and to
exercise discretion over whether such jurisdiction would be
36             PURE WAFER V. CITY OF PRESCOTT

appropriate in the context of this litigation.”); Webster v.
Omnitrition Int’l, Inc., 79 F.3d 776, 790 (9th Cir. 1996) (“The
Attorney Defendants ask us to dismiss the state law claims
against them for lack of pendent jurisdiction. The district
court may, in its discretion, refuse to exercise supplemental
jurisdiction after considering 28 U.S.C. § [1367].[2] We will
not examine the necessary factors in the first instance.”
(emphasis added)).

    In Fang v. United States, the plaintiff filed federal and
state law claims against the United States based on her
daughter’s death in a national park. 140 F.3d 1238, 1240 (9th
Cir. 1998). The district court granted summary judgment on
the federal claims for lack of subject matter jurisdiction under
the Federal Tort Claims Act. Id. It also dismissed the state
law claims for lack of subject matter jurisdiction under
28 U.S.C. § 1367(c)(3). Id. On appeal, after deciding to
reverse the district court’s dismissal of the federal claims, we
considered the dismissal of the supplemental claims. Id. at
1241–43. We reasoned that, because the federal claims “were
erroneously dismissed, the reason for dismissing the
remaining supplemental claims no longer exist[ed].” Id. at
1244. Declining to rule on the defendants’ arguments that
complex state law questions and predominance of state law
issues called for us to uphold the dismissal of the state law
claims, we held:

         The decision to exercise supplemental
         jurisdiction is within the discretion of the


     2
      Webster cites 28 U.S.C. § 1366, concerning “laws applicable
exclusively to the District of Columbia,” which were not at issue in that
case. The citation to § 1366 is clearly a typographical error that was
intended to cite 28 U.S.C. § 1367.
             PURE WAFER V. CITY OF PRESCOTT                  37

        district court and that court must be given an
        opportunity to make that decision. We
        therefore remand the case to the district court
        where it can determine whether it should
        retain jurisdiction over the state law claims in
        light of [these] alternate arguments.

Id.

    In Hunsaker v. Contra Costa County, the plaintiff brought
disparate impact disability claims under both federal and state
law, seeking a permanent injunction. 149 F.3d 1041, 1042
(9th Cir. 1998). The district court ordered the injunction on
the federal claim. Id. This court reversed, holding that there
was no violation of the federal law. Id. at 1044. Over the
plaintiff’s argument that we should, nonetheless, uphold the
injunction under the alternative state law claim, we held,
“[t]he district court did not rule on this claim, and we have
nothing to review. We should allow the district court to
consider this claim in the first instance or, in its discretion,
decline to exercise supplemental jurisdiction.” Id.

    Here, the district court initially exercised supplemental
jurisdiction over the state law breach claims but ultimately
dismissed them as moot, based on its ruling on the
constitutional claims. As in Fang, our disposition of the
federal claims on appeal negated the basis on which the
district court dismissed the state law claims. In Fang, we
could have ruled on whether the plaintiff’s claims presented
novel state law issues that substantially predominated over
the federal claims, which could have disposed of the state
claims. However—recognizing (1) that deciding whether to
exercise supplemental jurisdiction is a discretionary question
for the district court, and (2) ruling on the defendants’
38           PURE WAFER V. CITY OF PRESCOTT

alternative arguments would have deprived the district court
the opportunity to decide in the first instance whether to
exercise that jurisdiction—we remanded so the court in the
best position to rule on the jurisdiction issue could do so. See
Fang, 140 F.3d at 1244. The present case compels the same
result. As in Hunsaker, the district court did not rule on the
alternative state law basis for the judgment. 149 F.3d at 1044.
Therefore, we have nothing to review with respect to that
alternative basis, and “[w]e should allow the district court to
consider [the breach of contract claims] in the first instance
or, in its discretion, decline to exercise supplemental
jurisdiction.” See id.

     B. Because the district court held that the breach claims
        were moot, it made no factual findings specific to
        those claims, and we err in failing to remand for
        factual findings now that the claims are no longer
        moot.

   Even if we knew the district court would decide to
exercise supplemental jurisdiction, remand would still be
necessary, because the district court made no factual findings
with respect to the breach of contract claims.

     Although pure interpretation of language in a contract is
a question of law, see Grosvenor Holdings, L.C. v. Figueroa,
218 P.3d 1045, 1050 (Ariz. Ct. App. 2009), the primary
purpose of contract law in Arizona is to determine the parties’
intended meaning of the contract at the time of formation, see
Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134,
1138–40 (Ariz. 1993) (in banc), which “is a question of fact
left to the fact finder,” Chopin v. Chopin, 232 P.3d 99, 102
(Ariz. Ct. App. 2010). In cases where extrinsic evidence is
used to determine the parties’ intent from multiple reasonable
             PURE WAFER V. CITY OF PRESCOTT                  39

interpretations of contractual language, the interpretation of
the contract will generally also become a question of fact. See
In re Estate of Pouser, 975 P.2d 704, 709 (Ariz. 1999);
Taylor, 854 P.2d at 1144–45. Likewise, “[w]hether a party
has breached [the] contract is a question of fact.” Great W.
Bank v. LJC Dev., LLC, 362 P.3d 1037, 1045 (Ariz. Ct. App.
2015). We must allow the district court an opportunity, in the
first instance, to make these factual determinations for Pure
Wafer’s breach of contract claims.

    In its order, the district court found the breach claims
moot in light of how it disposed of the constitutional claims.
This treatment of the breach claims resulted in the court
devoting only about one-quarter of a page (out of a thirty-two
page opinion) directly to these alternative claims. And even
that minimal space includes no findings of fact specific to the
breach claims, instead providing that the district court “need
not reach Pure Wafer’s alternative [contract] claims.”
Because the district court found the breach claims moot based
on the premise that the constitutional claims were valid, our
ruling today has removed the only basis on which the district
court dismissed those claims. Therefore, the breach claims
must be revived. See Fang, 140 F.3d at 1243–44 (reinstating
state law claims where, after court of appeals’ ruling, district
court’s “reason for dismissing the remaining supplemental
claims no longer exist[ed]”). Although the breach claims are
revived—because (1) we have negated the only conclusion
the district court reached with respect to these claims, and
(2) the district court made no factual findings specific to the
breach claims—there is nothing for this court to review
concerning the claims at this stage. Instead, by deciding the
breach claims, the majority steps into the role of fact-finder,
see United Cal. Bank v. Prudential Ins. Co. of Am., 681 P.2d
390, 454 (Ariz. Ct. App. 1983) (resolving evidentiary
40           PURE WAFER V. CITY OF PRESCOTT

questions is the role of the district court), without the benefit
of district court findings concerning these claims, and relying
only on findings the district court made in the context of
constitutional claims that we hold today to be invalid.

     C. The majority decides this case based on the breach of
        contract claims it believes Pure Wafer should have
        alleged, instead of addressing the claims Pure Wafer
        actually alleged.

     In addition to assuming the district court’s role of fact-
finder, the majority’s breach of contract analysis fails to even
mention the only two provisions Pure Wafer actually alleged
in its complaint that the City breached. The complaint alleged
the City breached the Agreement (1) under section 14.14 by
failing to exempt Pure Wafer from the 2013 ordinance, and
(2) under section 9.2 by failing to exempt Pure Wafer from
the 2013 ordinance. According to the majority, Pure Wafer
alleged “that the City, by enacting the Ordinance, had
committed at least two different breaches of contract.” Maj.
Op. 12–13. Although this initial statement about the breach
claims is accurate, when the majority actually discusses the
substance of those claims it does not once cite to, or analyze
the content of, section 14.14 or section 9.2 of the Agreement.
The majority also asserts that “Pure Wafer included a claim
for simple breach of contract in its suit against the City,
alleging that ‘Pure Wafer cannot comply with the Ordinance
without incurring substantial costs which the Development
Agreement allocated to the City.’” Id. at 19–20. While, again,
the majority correctly recognizes that Pure Wafer included
breach of contract claims, it implies, incorrectly, that Pure
Wafer alleged facts concerning cost allocation specifically in
the context of its breach claims. Pure Wafer did not. Instead
of considering the breach claims as Pure Wafer alleged them,
            PURE WAFER V. CITY OF PRESCOTT                  41

the majority analyzes the breach claims it believes Pure
Wafer should have alleged, rules in Pure Wafer’s favor on
those claims, and never addresses the breach claims Pure
Wafer actually alleged in its complaint.

   D. The majority’s analysis of the breach claims
      contradicts a plain reading of the Agreement, fails to
      address several relevant provisions, and demonstrates
      that further factual development may be needed.

    As noted, the primary goal of Arizona contract law is to
determine the parties’ intended meaning of their agreement
and to give effect to that contractual intent. See Taylor,
854 P.2d at 1138–40. Thus, in attempting to discover the
parties’ intent, courts are to liberally consider extrinsic
evidence to show the parties’ intended interpretation of their
contractual language. See id. at 1138–41. However, because
“[i]nterpretation is the process by which we determine the
meaning of words,” see id. at 1138, extrinsic evidence is
useful only to the extent it reveals how the parties’ intent is
reflected in the words they chose to memorialize their
agreement, see id. at 1140–44; see also Smith v. Melson, Inc.,
659 P.2d 1264, 1266 (Ariz. 1983) (in banc) (“A contract
should be read in light of the parties’ intentions as reflected
by their language and in view of all the circumstances.”). And
the further an interpretation gets from the contract’s actual
language, the more convincing the extrinsic evidence must be
to show the parties intended that meaning. See Taylor,
854 P.2d at 1139–40. In addition, the parties’ intent for
specific contractual language must be determined in light of
their entire agreement. See Smith, 659 P.2d at 1267.

    At the heart of the parties’ dispute are two difficult,
interrelated issues: (1) the limits of Pure Wafer’s right to
42           PURE WAFER V. CITY OF PRESCOTT

discharge into the City’s sewer, and (2) who bears the cost of
bringing that discharge into compliance with Arizona
Department of Environmental Quality (ADEQ) requirements.
The majority appears to rely exclusively on section 4.2 of the
Agreement to answer these questions. Although its
interpretation could be valid, it fails to analyze the specific
language of the provision on which it relies. Further, the
majority fails to consider several other provisions implicated
here. When read as a whole, the Agreement is clearly
susceptible to multiple reasonable interpretations with respect
to these issues.

       1. The majority’s interpretation of Pure Wafer’s
          discharge rights contradicts section 4.2’s plain
          meaning and has insufficient supporting extrinsic
          evidence to overcome that contradiction.

    The parties dispute what limits the Agreement places on
Pure Wafer’s right to discharge, and the City’s obligation to
accept, wastewater into the City’s sewer system. Section 4.2
requires the City to provide Pure Wafer 195,000 gallons of
daily “sewer capacity.” It further provides that the “City shall
not reclassify [Pure Wafer’s] effluent” for purposes of sewer
usage rates “unless there is a material change in the waste
water quality from the specifications attached hereto as
Exhibit F.” Exhibit F, in turn, lists 50 mg/L as the “typical
value” for fluoride and 100 mg/L as the “maximum.”

    Contrary to the findings of the district court, the majority
concludes Pure Wafer only has a right to discharge
wastewater of up to 100 mg/L fluoride. See Maj. Op. 8, 28,
30. The majority relies on Exhibit F for this limit. See id. at
8–9. It also relies on certain extrinsic evidence: (1) testimony
that, at the time of the Agreement, Pure Wafer expected to
             PURE WAFER V. CITY OF PRESCOTT                  43

discharge up to 100 mg/L fluoride and this understanding was
critical to its negotiations, id. at 28; (2) a 2004 letter
indicating that a City employee understood Pure Wafer to
have such a right, id. at 29; and (3) letters from ADEQ to the
City prior to the Agreement reflecting that the City knew it
must obtain an aquifer protection permit, see id. at 29.

    The district court below persuasively analyzed, and found
antithetical to the Agreement’s plain meaning, the conclusion
the majority now reaches as to Pure Wafer’s discharge rights.
Though section 4.2 obligates the City to supply sewer
capacity, it does not provide that Pure Wafer has a right to
discharge wastewater (through that capacity) with any
specified level of pollutants, or that there are any limits
(regardless of fluoride content) on what Pure Wafer may send
through its 195,000 daily gallons of sewer capacity.

    Exhibit F’s plain language cannot be read to impose
discharge limits, as the majority asserts. The district court
persuasively rejected the argument that Exhibit F established
any measure of Pure Wafer’s right to discharge effluent of a
particular fluoride content, and instead, held that no contract
provision could reasonably be interpreted to set such a limit.
The Agreement refers to Exhibit F only once. A plain reading
of that reference shows Exhibit F does not create any right to
discharge a certain amount of fluoride, but rather, relates only
to “sewer usage fees” Pure Wafer must pay for “sewer
capacity” under section 4.2. This reading was confirmed by
Pure Wafer’s only trial witness, who was involved in the
original planning of the Prescott facility. He testified that
Exhibit F did not relate to any right for Pure Wafer to
discharge certain contaminant levels but, instead, related only
to pricing.
44           PURE WAFER V. CITY OF PRESCOTT

    Although the majority points to extrinsic evidence to
support its position, it fails to address the interpretation
problem pointed out by the district court—that there is no
provision in the Agreement, the words of which we could
reasonably interpret to impose a 100 mg/L limit. There is no
better indication of contractual intent than a plain reading of
the language the parties chose to express their rights and
obligations in the Agreement. And, here, that language does
not support the majority’s position. Extrinsic evidence is
persuasive only to the extent that it shows the parties’ intent
through the meaning of the contractual language, see Taylor,
854 P.2d at 1140–44; Smith, 659 P.2d at 1266, and the further
an interpretation varies from the written language, the more
convincing the evidence must be to show the parties intended
the proffered interpretation, see Taylor, 854 P.2d at 1139–40.
The evidence on which the majority relies does not clear this
bar. Neither does the majority address the testimony of Pure
Wafer’s only witness, which contradicts the majority’s
reading of Exhibit F. Based on the conflicting interpretations
of the parties’ intended rights and obligations concerning
discharge, at the very least, the district court should be
permitted to determine the facts in the context of Pure
Wafer’s breach of contract claims. And, if on remand, there
is not persuasive evidence as to the parties’ actual intent, any
remaining ambiguity in the parties’ rights and obligations
should be interpreted against Pure Wafer as the party who
drafted the agreement. See Polk v. Koerner, 533 P.2d 660,
662 (Ariz. 1975). Interpretation against the drafter is
particularly applicable where the “party is attempting to
impose an obligation on another where otherwise such an
obligation would not exist.” United Cal. Bank, 681 P.2d at
412.
             PURE WAFER V. CITY OF PRESCOTT                     45

        2. The majority’s interpretation of the Agreement’s
           cost allocations contradicts the plain meaning of
           section 4.2 and ignores several provisions
           relevant to the financial obligations.

    The parties’ discharge rights and obligations also relate to
a second question at issue here: When environmental laws
allow the City to release wastewater into the aquifer only if
its fluoride content is below a certain level, and it is
undisputed that Pure Wafer’s discharge causes excess
fluoride levels, who bears the cost of abatement? The
majority interprets section 4.2 to impose the cost on the City.
See Maj. Op. 7–8, 24–29. It posits that, by agreeing to take
Pure Wafer’s discharge, the City agreed to bear the cost if the
law required purification to reduce the fluoride. However, this
reading contradicts section 4.2’s plain meaning and fails to
consider several other provisions that appear to affect the
parties’ financial obligations.

     Section 4.2 expresses when and how (logistically) the
City provides “sewer capacity” to Pure Wafer: It must hold
195,000 gallons of physical carrying capacity in “reserve in
its sewer disposal system at all times after commencement of
construction of the Facility.” Section 4.2 refers to existing
“[t]runk line facilities . . . currently in place [that] appear[ed]
adequate” to provide this carrying capacity. However, if the
trunk line facilities “prove[d] inadequate,” the “City [was]
obligated to augment such facilities . . . by constructing at no
cost to [Pure Wafer] all mains, lines, and other facilities
necessary to accept or accommodate the additional sewer
flow or effluent from the facility.”

    The majority suggests the City’s obligation to “augment
[inadequate] facilities” amounts to a “regulatory contract”
46          PURE WAFER V. CITY OF PRESCOTT

under which the City guaranteed Pure Wafer the benefit of
the regulatory scheme existing at the time of the Agreement
by agreeing to bear the cost of any changes. Maj. Op. 7–8,
24–29. However, a plain reading of section 4.2 requires only
that the City make available a specified amount of physical
space in the sewer system to accommodate Pure Wafer’s
discharge. And, if the sewer lines existing at the time of the
Agreement turned out to be insufficient to handle the required
volume of discharge, section 4.2 placed the financial burden
on the City to augment only the physical capacity of those
lines to accommodate the additional discharge that could not
otherwise physically fit through the system. See United Cal.
Bank, 681 P.2d at 425 (explaining that where a contract
includes general terms that accompany specific terms
covering the same subject matter, “the meaning of the general
terms is presumed to be limited [by] the enumerated specific
terms and to include only those things of the same nature as
those specifically enumerated”).

    The majority again fails to explain how the language of
section 4.2 supports its position. The section does not impose
an obligation to build some extensive purification facility,
unrelated to the sewer’s physical capacity to accept a certain
volume of wastewater through its pipes. Some extrinsic
evidence may support the majority’s position, but again, that
evidence is persuasive only to the extent it can be tied back
into the actual language of the Agreement, see Taylor,
854 P.2d at 1140–44; Smith, 659 P.2d at 1266, which the
majority has failed to do. Instead, a plain reading of section
4.2 supports a more reasonable alternative. Given the
conflicting interpretations, the district court should be given
the opportunity to make findings of fact—in the context of
Pure Wafer’s breach of contract claims—as to the parties’
understandings of the language in section 4.2. And if, at that
             PURE WAFER V. CITY OF PRESCOTT                   47

point, ambiguity remains as to their intended meaning, that
ambiguity should be resolved against Pure Wafer as the
drafting party. See Polk, 533 P.2d at 662; United Cal. Bank,
681 P.2d at 412.

    In addition to section 4.2’s plain meaning, several other
provisions may bear on the parties’ financial obligations
under the contract. Yet the majority has limited its analysis to
section 4.2 in isolation. See Smith, 659 P.2d at 1267. Read as
a whole, article 4 of the Agreement may also speak to the
parties’ cost allocations. For example, the detail with which
they allocate risk in section 4.3 tends to negate an
interpretation that section 4.2 makes allocations not explicitly
stated. Under circumstances not present here, section 4.3
expressly places on Pure Wafer:

        responsib[ility] for any engineering and
        construction associated with the connection to
        that infrastructure[, which shall] include, but
        not be limited to, metering and sampling
        devices and structures, pipeline, pump
        stations, etc. . . . [Pure Wafer] shall be
        responsible for sampling and testing costs. . . .
        In the event that [Pure Wafer] discharges
        effluent of an inferior quality than is required
        by permit, and the City’s facilities are
        negatively impacted, [Pure Wafer] shall be
        financially responsible.

Because some sections allocate the responsibilities, risks, and
costs in such detail, it is reasonable to assume that the parties
would have made similar explicit allocations in section 4.2,
if they intended section 4.2 to have that effect.
48          PURE WAFER V. CITY OF PRESCOTT

    The Agreement may also allow “surcharges” to Pure
Wafer if its fluoride levels increase the City’s processing
costs. Section 4.1, “Operations Water Supply,” provides that
“Water Supply shall be at City’s sole expense, without any
special assessments, costs, [or] surcharges.” Section 4.2
contains no protection against surcharges. Further, Pure
Wafer’s only witness testified that section 4.2 and Exhibit F
allow the City to charge higher sewer rates as discharge
contaminants increase “because it will cost [the City] more to
process.” His testimony indicates the parties may have
understood, upon executing the Agreement, that if the quality
of Pure Wafer’s discharge increased the City’s processing
costs, the increased costs could be passed on to Pure Wafer.

     While section 4.2 provides cost protections to Pure Wafer,
these protections may not prohibit increased processing costs.
Section 4.2 prohibits increasing Pure Wafer’s “sewer usage
fees” absent “a material change in the waste water quality.”
It also provides, “Sewer Capacity shall be at no cost” to Pure
Wafer other than “normal sewer usage fees.” As noted,
section 4.2 indicates “sewer capacity” refers only to physical
sewer space to carry away discharge. Therefore, it would not
preclude discharge-related charges for something other than
that physical space, such as a surcharge for the City’s extra
costs of processing the excess fluoride. Such a “surcharge”
would not amount to a “normal sewer usage fee” protected
under section 4.2, nor would it be assessed for “sewer
capacity.”

    In addition, evidence of the parties’ dealings as to the
excess-fluoride costs may show their understandings of cost
allocations. See United Cal. Bank, 681 P.2d at 418
(explaining that the parties’ treatment of terms after the
contract is executed but before a dispute as to meaning arises
             PURE WAFER V. CITY OF PRESCOTT                   49

“is entitled to great weight” as evidence of the parties’
intended meaning for those terms). During the period of their
Agreement, the City accepted Pure Wafer’s discharge
regardless of quality. However, whenever ADEQ found the
City in violation of fluoride limits, the City demanded Pure
Wafer’s help to remedy the problem. And the record reflects
Pure Wafer did help. Although some evidence suggests Pure
Wafer provided the assistance despite having no obligation to
do so, other evidence suggests Pure Wafer believed it was
obligated to help bear these costs: A 2004 letter from Pure
Wafer to the City (following the City’s Notice of Violation
(NOV) from ADEQ) outlined, “It is [Pure Wafer’s] intent to
work with the City to assure that its discharge . . . will enable
the City to consistently meet all of its permit requirements,
including fluoride.” The letter also explained Pure Wafer’s
plan to reduce fluoride concentrations. Finally, the letter
provided that “the NOV issued to the City is directly related
to our operations and potential remedial solutions may
require expenditures on our part.” Other 2004 letters indicate
that Pure Wafer hired an environmental engineer to determine
how to reduce fluoride levels. Pure Wafer’s reduction of
fluoride when its discharge caused the City to exceed
permitted levels tends to contradict Pure Wafer’s position that
it had a right to discharge wastewater with any fluoride
content. Given these interpretation problems, the district court
should have the first chance to determine the facts as to all of
the matters that may have affected the parties’ understandings
of their cost allocations.

    A final contract provision that may bear on the parties’
financial obligations is section 12, “Force Majeure.” Both
parties claim it would cost several million dollars to achieve
compliant fluoride levels. Given this burden, both parties
might claim defenses under section 12, which protects a party
50           PURE WAFER V. CITY OF PRESCOTT

from defaulting where “inability to perform [is] due [to] . . .
acts or the failure to act, of any utility, public or
governmental agent or entity . . . beyond the control or
without the fault of such party.” Changes to environmental
laws imposing new burdens on either party could possibly
amount to governmental action beyond the control and
without the fault of the parties. But the district court should
be given the first opportunity to make factual determinations
as to the parties’ understandings of the scope of this
provision.

    In sum, the majority errs in failing to consider (in any
manner) many of the provisions that may bear on the issues
before us and in failing to recognize that the provisions on
which it relies are subject to competing interpretations by
Pure Wafer and the City. We should allow the district court
to make the factual determinations with respect to these
issues in the first instance.

     E. Without allowing the district court an opportunity to
        consider the question, the majority bases its decision
        on a record that may be insufficient to show the
        parties’ contractual intent.

    In addition to the lack of written findings as to the breach
claims, a review of the present record suggests that the
abbreviated proceedings in the district court may not have
allowed for admission of extrinsic evidence sufficient to show
the parties’ contractual intent. The district court should be
permitted on remand to determine whether, under Arizona
contract law, the record is adequately developed with facts
that show what the parties truly intended their agreement to
mean.
             PURE WAFER V. CITY OF PRESCOTT                   51

        1. Lack of attention to the breach claims indicates
           that the parties have not adequately developed the
           record as to those claims.

    The history of this case evidences that the proceedings
may not have sufficiently developed the record on the breach
claims to allow a proper ruling on the merits. The parties
conveyed their initial expectations for the timing of all the
claims in this case in their joint December 2013 planning
report, where they estimated that discovery would take until
the end of April 2014 and the case would be ready for a three-
or four-day trial at the end of May. Instead of progressing
pursuant to this expected timeline, the evidentiary
proceedings in the district court were completed within five
weeks of the parties filing their initial planning report and
concentrated almost exclusively on the constitutional claims.

     Pure Wafer did not include breach of contract claims in its
initial complaint. Although Pure Wafer later amended to add
the breach claims at issue, it then immediately moved for a
preliminary injunction, making no argument that its breach
claims justified an injunction or that the claims would
eventually succeed on the merits. Instead, its motion sought
an injunction “pending a final judgment determining Pure
Wafer’s constitutional claims.” The motion referred to the
breach claims only once, representing that Pure Wafer
“add[ed] purely alternative claims for breach of contract . . .
and breach of the implied covenant of good faith and fair
dealing . . . [and that g]iven the City’s stated positions, those
claims would not succeed and [were] asserted only in the
alternative . . . out of an abundance of caution.” It was with
this perspective toward the breach claims that the parties and
district court would have prepared for the preliminary
52           PURE WAFER V. CITY OF PRESCOTT

injunction hearing, which the court scheduled for December
19, 2013.

    The district court limited each party to only three and one-
half hours to present evidence and argument. Thus, Pure
Wafer called only one witness during its presentation-in-
chief. At the close of the first day (during which the City also
called only one witness), the district court suggested they
proceed immediately with a trial on the merits, consolidate it
with evidence heard on the motion for preliminary injunction,
and finish presenting the evidence on the next available court
date (January 14, 2014). The parties agreed to the district
court’s suggestion. The court’s subsequent order provided
that the remainder of trial would be limited to the City calling
one more defense witness and Pure Wafer calling one rebuttal
witness (the same witness it called in its direct presentation).
The order also provided in a footnote that “the trial
necessarily includes the issue of liability on any claims
pleaded in the alternative, namely Pure Wafer’s alternative
claims for breach of contract and breach of the implied
covenant of good faith.” In other words, trial of the
alternative claims was ordered only after Pure Wafer
completed its presentation-in-chief, which focused primarily
on the preliminary injunction on the constitutional issues.
Indeed, when both parties would have been planning which
witnesses to subpoena, which to call, what questions to ask,
and what other evidence to present, they would have made
those decisions understanding that their presentations needed
to pertain only to Pure Wafer’s entitlement to a preliminary
injunction based exclusively on its constitutional claims. And
they certainly would not have made these decisions with the
understanding that they needed to try their entire cases, which
they had estimated (in their initial planning report) would not
be ready for five more months. This approach to the
                PURE WAFER V. CITY OF PRESCOTT                            53

evidentiary proceedings below highlights why the parties and
district court did not attempt to develop the record for the
breach of contract claims.

    Like the evidentiary portion of trial and every prior filing
in the case, the post-trial briefing and proposed findings and
conclusions only superficially addressed the breach claims.
As noted, the district court’s opinion devoted less than one-
quarter of a page (out of thirty-two pages) to the breach
claims, holding that they need not be reached and dismissing
them as moot.

    The parties’ treatment of the breach of contract claims on
appeal further supports the conclusion that the parties and
district court did not attempt to develop the record for the
purpose of addressing those claims. The only reference the
parties’ briefing made to the claims was in the City’s opening
brief: “Pure Wafer’s breach of contract claims . . . were
dismissed as moot and are not at issue on this appeal.” Pure
Wafer never disputed this position. Indeed, when asked at
oral argument, neither party was prepared to address the
appeal as a breach of contract case. We asked the City, “is
there a reason we can’t treat [this case] as a contract issue?”
The City answered, “I don’t think the record is developed to
that—that the findings of fact and conclusions of law are
developed to that level to permit you to do that.”3

    3
        This questioning occurred during the City’s rebuttal. The panel
initially raised the issue in its first question during Pure Wafer’s argument,
only after the City had already completed its argument-in-chief without
being asked to argue its position on the issue. Because the panel spent the
majority of Pure Wafer’s argument exploring whether we could approach
the case as a breach of contract dispute, it is troubling that the panel did
not raise the issue at a time that would ensure the City an equal
opportunity to address it.
54           PURE WAFER V. CITY OF PRESCOTT

    Pure Wafer was equally reluctant to agree that the case
could appropriately be decided as a breach of contract claim
on the present record. Even in response to the question, “can
you still prevail in this particular appeal by persuading us that
the district court made enough findings to establish that this
was a breach of contract,” Pure Wafer never adopted that
position. As its argument came to a close, Pure Wafer
conceded that the parties’ cost allocations for reducing
fluoride was a term fully covered by the Agreement.
Following this concession, however, we clarified whether
Pure Wafer thought that (because the term was covered by the
Agreement) the case could be decided on a breach of contract
theory, rather than by reaching the constitutional issue. Pure
Wafer reluctantly answered, “Maybe.” This ambivalent
response (the last word of Pure Wafer’s argument) typifies
the parties’ and district court’s perspective of the breach
claims throughout this case.

        2. Having clearly not focused on the breach of
           contract claims, the proceedings up to this point
           may have left the factual record without adequate
           evidence of the parties’ contractual intent.

    In light of Arizona’s goal of giving effect to the parties’
intent, the Arizona Supreme Court in Taylor explained the
great extent to which the state allows parties to offer extrinsic
evidence to show their understandings of contractual
language, and thus, their contractual intent. See 854 P.2d at
1138–41. In analyzing the meaning of language and how it
shows the parties’ intent, Arizona has expressly rejected the
requirement “to make a preliminary finding of ambiguity”
before the court can consider extrinsic evidence. See id. at
1138. Instead, the court must consider all extrinsic evidence
that may support a party’s reasonable interpretation of
             PURE WAFER V. CITY OF PRESCOTT                   55

contractual language as showing the party’s theory of
contractual intent. See id. at 1139. Under this more liberal
approach, Arizona allows the court to “consider surrounding
circumstances, including negotiation, prior understandings,
. . . subsequent conduct,” and the like in interpreting the
contract. See id. at 1139–40; see also Smith, 659 P.2d at 1267
(“When interpreting an agreement, the court may always
consider the surrounding circumstances.” (citing Restatement
(Second) of Contracts § 212 (1981))). If extrinsic evidence
shows the parties used language in their contract they
mutually understood and intended to have a certain meaning,
the court must give effect to that intent, even if the words
have a different meaning under ordinary usage. See Taylor,
854 P.2d at 1139. “[T]he purpose is to produce the contract
result the parties intended, not that which the judge intends.
Some words are clear beyond dispute. Some may mean one
thing to the judge but could have meant something else to the
parties. It is the latter meaning that is important.” Id. at 1141
n.2.

    Because the proceedings in the district court did not
concentrate on the breach of contract claims, the parties had
no reason to develop the record with all the facts relevant to
those claims. Pure Wafer has consistently maintained that the
parties extensively negotiated before executing the
Agreement. It alleged that they met “on many occasions and
communicated . . . by telephone and written
communications.” It also alleged they “spent several months
negotiating the terms of [their Agreement] to provide the
protection desired both to Pure Wafer and to the City, on the
key economic development elements of their deal.”
According to Pure Wafer, “effluent capacity and quality were
material terms the parties considered and negotiated . . . , and
[the Agreement] reflects those bargains.” It alleged the parties
56           PURE WAFER V. CITY OF PRESCOTT

negotiated for the City to accept effluent of a specific
“chemical profile,” and to accept the risk that the City’s
permit requirements could change, resulting in extra expense.

    In describing the parties’ negotiations, the district court
cited only one exhibit and seven pages of trial transcript,
coming from the testimony of only one witness. And even
these two items were considered by the district court only for
their relevance to the constitutional claims. The court did not
address how this evidence may have pertained to the breach
of contract allegations, because it found those claims to be
moot. Arizona law allows a party to offer—and requires the
court to consider—all extrinsic evidence that supports the
party’s reasonable interpretation of a contract. Given Pure
Wafer’s continued insistence that the parties extensively
negotiated the terms at issue in this case prior to executing the
Agreement, it is most likely that more extensive and
compelling evidence exists than the current record shows.

    For example, there is no evidence in the record to
establish the City’s intended meaning of the Agreement and
understandings from the negotiations at the time of contract
formation. Surely someone from the City involved in (or
knowledgeable on the details of) the many months of
“telephone and written communications” between the parties
would be available to provide this information. Concerning
negotiations, there may be several witnesses who can testify,
early drafts of the Agreement, the parties’ notes on those
drafts, communications regarding their understandings of
certain terms, compromises they reached, terms they changed,
etc., all of which is highly relevant and necessary to
determining the parties’ intent, but none of which can be
found in the record. The record indicates such evidence
exists; it simply has not been made part of the record. For
             PURE WAFER V. CITY OF PRESCOTT                   57

example, a 1997 internal Pure Wafer memo refers to
discussions of sewer usage rates the parties had at “the
Development Agreement meeting.” However, the record
contains no minutes, notes, or correspondence to show
specifically what was discussed at this meeting. Similarly, a
2011 letter from Pure Wafer to the City outlined that, in
preparing the letter, Pure Wafer’s attorney “pulled [Pure
Wafer’s] file from the time the Agreement was drafted and
reviewed the notes of [his] meetings and telephone
conversations with the City, as well as correspondence with
the City and drafts of the Agreement.” Yet these notes,
written correspondence, and draft Agreements are absent
from the record. Given this record, the testimony of a single
witness (testifying on Pure Wafer’s behalf) does not seem
sufficient to establish the contractual intent of both parties at
the time they executed the Agreement, especially where so
much additional extrinsic evidence is likely available.

     The parties’ true intent cannot be revealed without
consideration of all available evidence and application of that
evidence to the language of the contract as a whole. Though
it is certainly within the fact-finder’s discretion, I anticipate
the district court on remand would want to conduct additional
proceedings with respect to the breach claims, because the
lack of attention to those claims leaves the record far short of
containing all available evidence of contractual intent. The
parties should be permitted to develop concrete evidence of
their positions and understandings of the relevant terms at the
time they executed the Agreement.

III.    Conclusion

   The district court should have the first opportunity to
consider whether to exercise supplemental jurisdiction,
58           PURE WAFER V. CITY OF PRESCOTT

because we have dismissed the only federal claim. This
dismissal also necessitates a remand for the district court to
make findings of fact and conclusions of law specific to the
breach of contract claims, having previously found those
claims to be moot. The majority errs by stepping into the role
of fact-finder in the first instance with respect to the breach
claims; by failing to address the claims Pure Wafer actually
alleged; and by failing to recognize that its analysis of the
breach claims contradicts the Agreement’s plain meaning,
fails to consider the Agreement as a whole, and is lacking
adequate support from the record.

    The circumstances warrant remand to permit the district
court (or an Arizona court) the first opportunity to address the
merits. Doing so would allow the trial court to focus on the
language of the Agreement and, in accordance with Arizona
law, consider any extrinsic evidence that supports a
reasonably susceptible interpretation of the contract. While I
am cognizant of the desire for a speedy and efficient
resolution of this dispute, the majority’s opinion sacrifices a
proper and thorough resolution of this case for a speedy one.
