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1 MANATT, PHELPS & PHILLIPS, LLP Exempt from filing fee pursuant to
Barry W. Lee (SBN 88685) Government Code § 6103
2 Justin Jones Rodriguez (SBN 279080)
One Embarcadero Center, 30th Floor ELECTRONICALLY
3 San Francisco, California 94111 F I L E D
Telephone: (415) 291-7450 Superior Court of California,
4 Facsimile: (415) 291-7474 County of San Francisco
Email: bwlee@manatt.com 08/19/2022
5 Email: jjrodriguez@manatt.com Clerk of the Court
BY: RONNIE OTERO
6 THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
Deputy Clerk
Marcia Scully (SBN 80648)
7 Heather C. Beatty (SBN 161907)
Patricia J. Quilizapa (SBN 233745)
8 700 North Alameda Street
Los Angeles, CA 90012-2944
9 Telephone: (213) 217-6834
Facsimile: (213) 217-6890
10 Email: hbeatty@METROPOLITANh2o.com
11 Attorneys for Respondent, Defendant, and Cross-Complainant
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
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Additional counsel listed on following page
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14 SUPERIOR COURT OF THE STATE OF CALIFORNIA
15 FOR THE COUNTY OF SAN FRANCISCO
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17 SAN DIEGO COUNTY WATER Case No. CPF-14-514004, consolidated with
AUTHORITY, Case Nos. CPF-16-515282 & CPF-18-
18 516389
Petitioner and Plaintiff,
19 Assigned for all purposes to the
v. Hon. Anne-Christine Massullo, Dept. 304
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THE METROPOLITAN WATER DISTRICT METROPOLITAN WATER DISTRICT
21 OF SOUTHERN CALIFORNIA, ALL OF SOUTHERN CALIFORNIA’S
PERSONS INTERESTED IN THE POST-TRIAL BRIEF
22 VALIDITY OF THE RATES ADOPTED BY
THE METROPOLITAN WATER DISTRICT
23 OF SOUTHERN CALIFORNIA ON APRIL 8,
2014 TO BE EFFECTIVE JANUARY 1, 2015
24 AND JANUARY 1, 2016; and DOES 1-10,
25 Respondents and
Defendants.
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MANATT, PHELPS &
PHILLIPS, LLP METROPOLITAN’S POST-TRIAL BRIEF
ATTORNEYS AT LAW
SAN FRANCISCO
(CASE NO. CPF-14-514004)
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2 THE METROPOLITAN WATER DISTRICT OF
SOUTHERN CALIFORNIA,
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Respondent, Defendant and Cross-
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6 SAN DIEGO COUNTY WATER
AUTHORITY,
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Petitioner, Plaintiff and Cross-
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PHILLIPS, LLP METROPOLITAN’S POST-TRIAL BRIEF
ATTORNEYS AT LAW
SAN FRANCISCO
(CASE NO. CPF-14-514004)
1 MILLER BARONDESS LLP
Mira Hashmall (SBN 216842)
2 1999 Avenue of the Stars, Suite 1000
Los Angeles, California 90067
3 Telephone: 310-552-4400
Facsimile: 310-552-8400
4 Email: mhashmall@millerbarondess.com
5 MORGAN, LEWIS & BOCKIUS LLP
Colin C. West (SBN 184095)
6 One Market, Spear Street Tower
San Francisco, California 94105-1596
7 Telephone: (415) 422-1000
Facsimile: (415) 422-1101
8 Email: colin.west@morganlewis.com
9 Attorneys for Respondent, Defendant, and Cross-Complainant
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
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PHILLIPS, LLP METROPOLITAN’S POST-TRIAL BRIEF
ATTORNEYS AT LAW
SAN FRANCISCO
(CASE NO. CPF-14-514004)
1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION .............................................................................................................. 1
4 II. SUMMARY OF EVIDENCE ............................................................................................. 2
A. Full-Service, Wheeling, and Exchanges ................................................................. 2
5
B. The Exchange Agreement ....................................................................................... 4
6 III. THE RATE CLAIMS AND DEFENSES ........................................................................... 6
7 A. Wheeling Statutes.................................................................................................... 7
B. Proposition 26 ......................................................................................................... 8
8
C. Government Code § 54999.7(a) .............................................................................. 9
9 D. Government Code § 66013 ................................................................................... 10
10 E. MWD Act § 134 .................................................................................................... 10
F. Common Law ........................................................................................................ 10
11
IV. THE CONTRACT CLAIMS AND DEFENSES .............................................................. 10
12 A. There is no contract for offsetting benefits ........................................................... 11
13 1. The four corners of the contract control .................................................... 11
B. Extrinsic evidence also supports Metropolitan ..................................................... 12
14
1. The 1998 Exchange Agreement ................................................................ 12
15 2. The Exchange Agreement ......................................................................... 12
16 3. Course of Dealing ..................................................................................... 14
4. Contract Performance................................................................................ 14
17
C. The contract claim fails on the breach element ..................................................... 15
18 D. The contract claim fails on the damages element ................................................. 15
19 1. San Diego’s damages are impermissibly speculative ............................... 15
2. San Diego’s claimed damages fatally hinge on Resolution 8520 ............. 16
20
V. SATISFACTION OF THE 2010/2012 JUDGMENT ....................................................... 18
21 VI. ADDITIONAL METROPOLITAN DEFENSES ............................................................. 18
22 A. Dispute Resolution (Metropolitan’s 5th affirmative defense) .............................. 18
B. Administrative Discretion (Metropolitan’s 7th affirmative defense).................... 18
23
C. Unjust Enrichment (Metropolitan’s 21st affirmative defense) ............................. 19
24 D. Mistake (Metropolitan’s 27th and 28th affirmative defenses) .............................. 19
25 VII. METROPOLITAN’S REFORMATION CROSS-CLAIMS ............................................ 19
VIII. METROPOLITAN’S COST-CAUSATION CROSS-CLAIM......................................... 20
26
IX. CONCLUSION ................................................................................................................. 20
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TABLE OF CONTENTS
1 TABLE OF AUTHORITIES
2 Page
3
CASES
4 Baines v. Zuieback,
5 84 Cal. App. 2d 483 (1948)..................................................................................................... 19
Brinton v. Bankers Pension Servs., Inc.,
6 76 Cal. App. 4th 550 (1999).................................................................................................... 12
7 City of San Buenaventura v. United Water Cons. Dist.,
79 Cal. App. 5th 110 (2022)...................................................................................................... 9
8
Demetris v. Demtris,
9 125 Cal. App. 2d 440 (1954)................................................................................................... 19
10 Donovan v. RRL Corp.,
26 Cal. 4th 261 (2001) ............................................................................................................ 20
11 Durant v. Beverly Hills,
12 39 Cal. App. 2d 133 (1940)..................................................................................................... 10
Employers Reins. Co. v. Super. Court,
13 161 Cal. App. 4th 906 (2008).................................................................................................. 12
14 First Am. Title Ins. & Trust Co. v. Cook,
12 Cal. App. 3d 592 (1970)..................................................................................................... 20
15
Hansen v. City of San Buenaventura,
16 42 Cal. 3d 1172 (1986) ....................................................................................................... 8, 10
17 Humphreville v. City of L.A.,
58 Cal. App. 5th 115 (2020)...................................................................................................... 9
18 In re Quantification Settlement Agreement Cases,
19 201 Cal. App. 4th 758 (2011).............................................................................................. 4, 14
Metro. Water Dist. of S. Cal. v. Imperial Irrigation Dist., et al.,
20 80 Cal. App. 4th 1403 (2000)............................................................................................ 1, 3, 6
21 Moore v. Cal. State Bd. of Accountancy,
2 Cal. 4th 999 (1992) ................................................................................................................ 9
22
Oasis W. Realty, LLC v. Goldman,
23 51 Cal. 4th 811 (2011) ............................................................................................................ 11
24 Parkford Owners for a Better Community v. County of Placer,
54 Cal. App. 5th 714 (2020)...................................................................................................... 7
25 Piscitelli v. Friedenberg,
26 87 Cal. App. 4th 953 (2001).................................................................................................... 15
Rincon Del Diablo Mun. Water Dist. v. San Diego Cty. Water Auth.,
27 121 Cal. App. 4th 813 (2004).................................................................................................. 10
28
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ATTORNEYS AT LAW
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TABLE OF AUTHORITIES
1 TABLE OF AUTHORITIES
(continued)
2 Page
3 San Diego County Water Auth. v. Metro. Water Dist. of S. Cal.,
117 Cal. App. 4th 13 (2004).................................................................................................... 19
4
San Diego Cty. Water Auth. v. Metro. Water Dist. of S. Cal.,
5 12 Cal. App. 5th 1124 (2017)........................................................................................... passim
6 San Luis Coastal Unified Sch. Dist. v. City of Morro Bay,
81 Cal. App. 4th 1044 (2000).................................................................................................. 18
7
SLPR, L.L.C. v. San Diego Unified Port Dist.,
8 49 Cal. App. 5th 284 (2020).................................................................................................... 12
Spurgeon v. Drumheller,
9
174 Cal. App. 3d 659 (1985)................................................................................................... 18
10 Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC,
185 Cal. App. 4th 1050 (2010)................................................................................................ 11
11
Wilson v. City of Laguna Beach,
12 6 Cal. App. 4th 543 (1992)...................................................................................................... 18
13 STATUTES
Civ. Code § 1636 .......................................................................................................................... 11
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Civ. Code § 1638 .......................................................................................................................... 11
15
Civ. Code § 1639 .......................................................................................................................... 11
16 Civ. Code § 3399 .......................................................................................................................... 19
17 Code Civ. Proc. § 870 ................................................................................................................... 14
18 Code Civ. Proc. § 1060 ................................................................................................................. 18
Gov. Code § 54999.1(h) .................................................................................................................. 9
19
Gov. Code § 54999.7(a) .................................................................................................................. 9
20
Gov. Code § 66013(b)(3) .............................................................................................................. 10
21 MWD Admin. Code § 4119 ............................................................................................................ 3
22 MWD Admin. Code § 4405 ............................................................................................................ 3
23 Wat. Code appen. § 109-134 ......................................................................................................... 10
Wat. Code § 1810 .................................................................................................................. 3, 8, 15
24
Wat. Code § 1810(d) ....................................................................................................................... 8
25
Wat. Code § 1811(c) ......................................................................................................... 1, 3, 8, 12
26 Wat. Code § 22762 ........................................................................................................................ 14
27
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TABLE OF AUTHORITIES
1 I. INTRODUCTION
2 The core issue in these cases is San Diego’s allegation that Metropolitan failed to provide
3 credit for any offsetting benefits in the price term of the parties’ 2003 Amended and Restated
4 Exchange Agreement. (PTX65 [“Exchange Agreement”].) San Diego’s first three causes of action
5 challenge Metropolitan’s generally applicable transportation rate components and former preset
6 wheeling rate on the theory that Water Code §§ 1810 et seq. (“Wheeling Statutes”) and other laws
7 somehow required Metropolitan to make an offsetting benefits determination and apply a credit to
8 San Diego. That theory makes no sense. The challenged rates are all generally applicable, not
9 transaction specific. The Wheeling Statutes require an offsetting benefits credit, if at all, only on a
10 case-by-case basis. Metro. Water Dist. of S. Cal. v. Imperial Irrigation Dist., et al. (“IID”), 80
11 Cal. App. 4th 1403, 1420 (2000). The other laws are silent on offsetting benefits.
12 San Diego’s fourth cause of action alleges that Metropolitan breached the Exchange
13 Agreement by not providing an offsetting benefits credit. But the parties did not intend the price
14 to include offsetting benefits. The parties executed the contract on October 10, 2003. San Diego
15 did not request an offsetting benefits determination until March 11, 2018 (PTX925)—15 years
16 later and after its 2017 appellate loss on most contract damages it sought in the parties’ earlier
17 litigation. Seeking a new basis for damages, San Diego now contends it is entitled to a $334M
18 offsetting benefits credit for just 2015-2020. San Diego’s 15-year silence about such a valuable
19 “benefit” completely negates intent.
20 San Diego also asks the Court to invent an offsetting benefit that has no basis in law. The
21 Wheeling Statutes concern only benefits to a conveyance system owner “for the use of the
22 conveyance system.” Wat. Code § 1811(c). San Diego asks the Court to contradict that language
23 to rule that an offsetting benefit may be based on introducing a new water supply to a region. San
24 Diego’s only hook for its novel theory is Metropolitan’s Resolution 8520, adopted in 1997 and
25 repealed in 2020. Resolution 8520 was not applicable to the Exchange Agreement; it applied only
26 to wheeling transactions of one year or less to member agencies. In those cases, Metropolitan
27 elected to consider a discount to its wheeling rate based on regional water supply benefits
28 provided to Metropolitan’s service area on a case-by-case basis. No evidence exists that any party
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ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF
SAN FRA NCI S CO (CASE NO. CPF-14-514004)
1 intended Resolution 8520 to apply to the 110-year Exchange Agreement. San Diego’s former
2 General Manager and lead negotiator of the Exchange Agreement testified that Resolution 8520
3 did not govern the contract’s price term. (Reporter’s Transcript [“RT”] 800:7-801:10, 805:12-25.)
4 And even if it did apply, it includes numerous conditions precedent that San Diego did not meet.
5 Metropolitan is entitled to judgment on every claim and cross-claim for the reasons
6 detailed below, discussed in Metropolitan’s pre-trial brief, and presented at trial.
7 II. SUMMARY OF EVIDENCE
8 Metropolitan is a voluntary cooperative of 26 member agencies, including San Diego.
9 Metropolitan delivers wholesale water to its member agencies from two principal sources: the
10 Colorado River via the Colorado River Aqueduct (“CRA”) and the State Water Project (“SWP”)
11 via the California Aqueduct. San Diego Cty. Water Auth. v. Metro. Water Dist. of S. Cal., 12 Cal.
12 App. 5th 1124, 1131 (2017) (“SDCWA”). Metropolitan is required by statute to establish rates for
13 the water it delivers to generate sufficient revenue to pay its costs. Wat. Code appen. § 109-134.
14 Metropolitan adopted an unbundled rate structure in 2003, allocating its costs to supply
15 and transportation rate components. (RT 1521:23-1524:28.) Supply rates recover Metropolitan’s
16 cost of obtaining water supply, as well as maintaining and developing additional water supplies.
17 Transportation rates recover the costs of constructing, operating, and maintaining Metropolitan’s
18 water conveyance infrastructure. The transportation rates consist of a system access rate
19 “designed to recover the capital, operating, and maintenance costs associated with transportation
20 facilities”; a system power rate designed to “recover[] the cost of pumping water through the
21 [SWP] and [CRA] to Southern California; and formerly, a water stewardship rate (“WSR”)
22 “designed to recover the costs of conservation programs and other water management programs
23 that reduce and defer system capacity expansion costs.” SDCWA, 12 Cal. App. 5th at 1138.
24 A. Full-Service, Wheeling, and Exchanges
25 Metropolitan provides full-service water (Metropolitan supplies and transports water) to
26 its member agencies. Metropolitan provided wheeling service to its member agencies for
27 transactions of one year or less with a preset wheeling rate until the rate’s repeal in August 2020.
28 Other wheeling (for over one year; to third parties; and after the repeal, to member agencies for
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1 one year or less) is contractual, with a negotiated price. Water exchanges have always been
2 contractual, with a negotiated price. Unlike exchanges, wheeling involves transporting another
3 party’s water through Metropolitan’s system; the water is not owned by Metropolitan.
4 The full-service rate includes the supply and transportation rate components. The preset
5 rate for wheeling service included the system access rate and former WSR, but not the system
6 power rate or any supply rates. (MWD Admin. Code §§ 4405; 4119.) Actual power costs and an
7 administrative fee were also charged for wheeling. (RT 1522:16-1524:28.)
8 The Wheeling Statutes define “wheeling” as the use of a public agency’s facilities to
9 convey water that is not owned by the agency, if there is unused capacity, in exchange for fair
10 compensation, which the facility owner has discretion to determine. Wat. Code § 1810. Fair
11 compensation is defined as: “reasonable charges incurred by the owner of the conveyance system,
12 including capital, operation, maintenance, and replacement costs, increased costs from any
13 necessitated purchase of supplemental power, and including reasonable credit for any offsetting
14 benefits for the use of the conveyance system.” Id. § 1811(c). Offsetting benefits under the
15 Wheeling Statutes are limited to benefits “for the use of the conveyance system.” Other
16 benefits—e.g., benefits from water supply—are not “offsetting benefits” from “use of the
17 conveyance system.” (See PTX26, MWD2010-00264776; RT 457:16-24, 1515:19-1517:23.)
18 In 1997, Metropolitan’s Board of Directors adopted Resolution 8520, supporting the pre-
19 set wheeling rate. (DTX23.) Resolution 8520 provided for a reduction for benefits, if any, on a
20 case-by-case basis for a particular wheeling transaction not exceeding one year: “The wheeling
21 rates shall be reduced to reflect the regional water supply benefits provided to Metropolitan’s
22 service area, if any, on a case-by-case basis in response to a particular wheeling transaction. The
23 regional benefits, if any shall be calculated by Metropolitan in the same manner as such benefits
24 are calculated for use in the Local Projects and Groundwater Recovery Program.” (DTX23.)
25 In 2000, the Court of Appeal upheld Metropolitan’s use of a fixed wheeling rate for short-
26 term transactions, with any offsetting benefits to be determined separately. IID, 80 Cal. App. 4th
27 at 1407-08. The court noted that “Metropolitan will provide offsetting benefits on a case-by-case
28 basis.” Id. at 1420. On August 18, 2020, with no transactions governed by the wheeling rate
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1 occurring in over 10 years, the Metropolitan Board of Directors repealed the preset wheeling rate
2 and Resolution 8520. (DTX2529; RT 1387:16-1388:25.)
3 B. The Exchange Agreement
4 Metropolitan is one of a few California entities with rights to Colorado River water. (RT
5 1167:9-21.) Imperial Irrigation District (“IID”) also has rights to Colorado River water and it has
6 sold conserved Colorado River water to other parties. The initial purchaser of IID’s conserved
7 water was Metropolitan in 1988. During 2015-2020, Metropolitan paid approximately $120/acre-
8 foot (“AF”) for its IID water. (RT 1710:11-26, 1711:23-1712:7.) Metropolitan was able to acquire
9 Colorado River water during the same time period from other sources for between $120/AF and
10 $375/AF. (RT 1710:11-26, 1711:23-1713:24, 1715:1-1717:3, 1721:25-1726:10.)
11 In 1998, a decade later, IID and San Diego, a Metropolitan member agency without
12 Colorado River rights, entered a similar agreement (“the IID-San Diego Agreement”). SDCWA,
13 12 Cal. App. 5th at 1135. San Diego paid approximately $679/AF for its IID water during 2015-
14 2020—more than five times as much as Metropolitan. (PTX1175A.)
15 IID agreed to transfer up to 200,000 AF of conserved Colorado River water per year to
16 San Diego, contingent on Metropolitan agreeing to accept delivery of the transfer water from IID
17 at Lake Havasu, and deliver a like quantity of water to San Diego. San Diego proposed a
18 wheeling agreement but the parties were unable to negotiate one. (RT 1518:7-1519:19.) Instead,
19 the parties entered into a 30-year exchange agreement. SDCWA, 12 Cal. App. 5th at 1136.
20 Under the 1998 Exchange Agreement (DTX28), San Diego agreed to pay Metropolitan
21 $90/AF with annual increases. The agreement was conditioned on the state legislature’s
22 appropriation of $235 million to Metropolitan for projects, including to line the earthen All-
23 American and Coachella Canals to conserve a water supply that would otherwise be lost through
24 seepage (“canal lining water”). There were no exchanges under the 1998 contract because
25 Colorado River water rights first needed to be quantified. (RT 422:10-14.)
26 In 2003, various water agencies with rights to Colorado River water negotiated numerous
27 agreements collectively referred to as the “Quantification Settlement Agreement” (“QSA”). The
28 Exchange Agreement, which was amended under the QSA, is one of those agreements. In re
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1 Quantification Settlement Agreement Cases, 201 Cal. App. 4th 758, 788 (2011) (“QSA Cases”).
2 Although the Exchange Agreement price term did not need to change as part of the QSA, San
3 Diego wanted to change it and proposed two options. (RT 1368:14-1371:14, 1527:9-13.)
4 Under Option 1, San Diego would continue to pay the same price negotiated in the 1998
5 Exchange Agreement. (RT 1369:15-28, 1527:9-1528:10.) Under Option 2—proposed in late
6 August 2003 by Scott Slater, San Diego’s co-lead negotiator—Metropolitan would assign to San
7 Diego Metropolitan’s right to approximately 77,000 AF of conserved canal lining water annually
8 for 110 years, as well as Metropolitan’s $235 million legislative appropriation for canal lining and
9 other projects. (RT 197:9-198:20, 595:23-596:5, 1369:15-1370:6.) San Diego agreed that the
10 value of Metropolitan’s assignment of the canal lining water was high (RT 482:7-17), and
11 proposed that in return, it would pay a higher contract price based on Metropolitan’s generally
12 applicable unbundled transportation rates. (DTX837 [9/16/2003 Campbell memo]; RT 242:7-12,
13 462:9-463:9.) Metropolitan would exchange both the IID water and the canal lining water.
14 Metropolitan allowed San Diego to choose between the two options. (RT 606:5-7, 1371:2-
15 5, 1529:12-16.) San Diego selected Option 2 and Metropolitan agreed. (RT 1370:17-1371:14,
16 1529:2-4.) Neither option included a request by San Diego for an offsetting benefits credit under
17 the Wheeling Statutes or any other theory; San Diego’s documents analyzing the options are
18 silent on offsetting benefits. (See DTX837; DTX 0855; RT 202:8-17, 204:6-13.)
19 On October 10, 2003, Metropolitan and San Diego entered the Exchange Agreement and
20 an Allocation Agreement. The consideration package was contained across the two documents:
21 the Exchange Agreement set forth the price, and the Allocation Agreement set forth
22 Metropolitan’s assignment to San Diego of its $235 million appropriation and the canal lining
23 water for 110 years. (PTX65; PTX67; RT 584:24-585:16.) Neither the Exchange Agreement nor
24 the Allocation Agreement included offsetting benefits as part of the consideration. The term of
25 the Exchange Agreement is 110 years—the same length as the assignment of the canal lining
26 water and more than a century longer than a transaction governed by Resolution 8520.
27 Section 5.2 of the Exchange Agreement set forth the new price term San Diego had
28 proposed and selected: “The price on the date of Execution of this Agreement shall be [$253.00].
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1 Thereafter, the Price shall be equal to the charge or charges set by Metropolitan’s Board of
2 Directors pursuant to applicable law and regulation and generally applicable to the conveyance of
3 water by Metropolitan on behalf of its member agencies …” (PTX65 [emphasis added].) The
4 terms “wheeling,” “fair compensation,” and “offsetting benefits” do not appear in Section 5.2.
5 And there is no written evidence that San Diego informed Metropolitan that it thought the price
6 term included offsetting benefits. (RT 258:1-10, 648:6-649:3, 668:10-12, 790:12-25, 792:5-793:3,
7 794:3-5, 795:5-17.) Instead, the parties agreed the Exchange Agreement price of charges
8 “generally applicable to the conveyance of water by Metropolitan on behalf of its member
9 agencies means the transportation rate components of Metropolitan’s full-service rate: the system
10 access rate, system power rate, and [WSR].” SDCWA, 12 Cal. App. 5th at 1138-39.
11 Under the Exchange Agreement, San Diego makes the IID and canal lining water
12 available to Metropolitan at Lake Havasu (RT 1272:1-4, 1535:3-18, 1861:23-1862:6, 1992:3-8)
13 where it becomes Metropolitan’s water (RT 1272:6-9, 1272:22-26, 1535:3-18). In return,
14 Metropolitan delivers a like quantity of water from any source(s) in San Diego, in monthly
15 intervals. (RT 1450:4-1451:6.) The contract does not provide for the transportation of San Diego
16 water; instead, it calls for the exchange of water that becomes Metropolitan water at Lake
17 Havasu, before it enters Metropolitan’s system. (PTX65 § 4.1; RT 1450:4-1451:6.)
18 III. THE RATE CLAIMS AND DEFENSES 1
19 San Diego cites several statutes and other law to argue that Metropolitan improperly set its
20 rates by not including a reasonable credit for offsetting benefits in them. That position fails.
21 First, the rates are generally applicable to all member agencies. It is not possible and is
22 nonsensical to reduce all rates by an offsetting benefits credit for all, regardless of a connection to
23 an applicable transaction. And that is not what San Diego seeks; it wants its own unique credit.
24 Second, the preset wheeling rate, until its repeal, was subject to an offsetting benefits
25 credit under Resolution 8520 on a case-by-case basis, which as discussed above, the Court of
26 Appeal already affirmed. IID, 80 Cal. App. 4th at 1407-08, 1420, 1434.
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1
San Diego’s 1st through 3rd causes of action; Metropolitan’s 1st, 2nd, and 5th cross-claims in
28 2014/2016 and 4th and 7th cross-claims in 2018.
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1 Third, San Diego’s offsetting benefits rate challenges fail because Metropolitan’s
2 wheeling rate and Resolution 8520 applied only to short term transactions of one year or less. See
3 SDCWA, 12 Cal. App. 5th at 1138 n.7. There are no such transactions at issue in these cases.
4 Fourth, the transportation rate components of Metropolitan’s full-service water rate are for
5 the sale and conveyance of Metropolitan water to Metropolitan’s member agencies. They are not
6 applicable to wheeled water or subject to the Wheeling Statutes.
7 Fifth, review of Metropolitan’s generally applicable rates is limited to the administrative
8 record for each rate year. SDCWA, 12 Cal. App. 5th at 1145. San Diego did not present evidence
9 at trial regarding insufficiency in the 2014, 2016, or 2018 administrative records.
10 Sixth, Metropolitan’s expert witness, Richard Giardina, analyzed Metropolitan’s rate-
11 setting methodology and Metropolitan’s application of that methodology in 2015-2020 as
12 evidenced in the administrative record for each biennial rate-setting period (2014, 2016, and
13 2018). Giardina—the principal author of the American Water Works Association’s M1 Principles
14 of Water Rates, Fees, and Charges Manual (“M1”) for the years at issue—concluded that
15 Metropolitan’s methodology was consistent with industry standards articulated in the M1 and that
16 Metropolitan adhered to that methodology when setting its rates in 2015-2020. (RT 1665:14-
17 1668:3.) The administrative records support Metropolitan’s rates. 2
18 Seventh, the rate challenges are moot as to the wheeling rate (Metropolitan’s 10th
19 affirmative defense). Metropolitan’s Board repealed the wheeling rate in August 2020.
20 (DTX2529.) San Diego’s claims with respect to that rate are thus moot. See Parkford Owners for
21 a Better Community v. County of Placer, 54 Cal. App. 5th 714, 722 (2020).
22 Finally, the laws San Diego cites also support judgment for Metropolitan:
23 A. Wheeling Statutes
24 San Diego misinterprets the Wheeling Statutes, which do not require generally applicable
25 rates to include a credit for offsetting benefits. Offsetting benefits apply, if at all, only to a
26 particular transaction where the conveyance system owner receives benefits by moving water
27 2
See also MWDRECORD2014_0000892-981 (2014 COS); MWDRECORD2016_0001540-2034
(2016 COS); MWDRECORD2018_0000175-873 (2018 COS); MWDRECORD2016_0049124-
28 143 (2016 Giardina Letter); MWDRECORD2018_0029861-900 (2018 Giardina Letter).
M ANATT , P HELPS & 7
P HILLIPS , LLP
ATTO RNEY S AT LAW
METROPOLITAN’S POST-TRIAL BRIEF
SAN FRA NCI S CO (CASE NO. CPF-14-514004)
1 owned by another party through its system. Wat. Code § 1811(c). (RT 1515:19-1517:23.)
2 Other conditions must also be satisfied before the Wheeling Statutes’ fair compensation
3 provision is triggered. The provision applies only to “the use of a water conveyance facility which
4 has unused capacity, for the period of time for which that capacity is available.” Wat. Code §
5 1810. Metropolitan’s transportation rate components are not rates for the use of available space.
6 Available capacity was required under the preset wheeling rate, but there is no applicable
7 transaction at issue. The Wheeling Statutes also condition use for fair compensation on lack of
8 injury to legal use and unreasonable effect on the economy or environment. Wat. Code § 1810(d).
9 Finally, the core inquiry of the Wheeling Statutes and every other law that San Diego cites
10 in its first three causes of action is the same: reasonableness. “Rates established by [a] lawful rate-
11 fixing body are presumed reasonable, fair, and lawful.” See Hansen v. City of San Buenaventura,
12 42 Cal. 3d 1172, 1180 (1986), superseded on other grounds in Citizens for Fair REU Rates v.
13 City of Redding, 6 Cal. 5th 1 (2018). San Diego has not presented evidence to overcome that
14 presumption. Metropolitan’s rates in 2015-2020 were reasonable because they were set following
15 a cost-of-service methodology in which Metropolitan sought to recover only its costs with each of
16 the rates it set. (RT 1646:21-1650:25, 1667:15-1668:3, 1672:6-1674:9.) 3 The evidence
17 demonstrates a reasonable relationship between Metropolitan’s rates and its costs. (RT 1174:10-
18 1175:22,
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CGC24615613
Matter on the Law & Motion calendar for Thursday, July 11, 2024, Line 15. PLAINTIFF PEOPLE CENTER, INC. D/B/A RIPPLING's Motion For Preliminary Injunction. Plaintiff People Center, Inc. d/b/a Rippling's motion for a preliminary injunction is denied. (The Court's complete tentative ruling has been emailed to the parties.) For the 1:30 p.m. Law & Motion calendar, all attorneys and parties may appear in Department 302 remotely. Remote hearings will be conducted by videoconference using Zoom. To appear remotely at the hearing, go to the court's website at sfsuperiorcourt.org under "Online Services," navigate to "Tentative Rulings," and click on the appropriate link, or dial the corresponding phone number. Any party who contests a tentative ruling must send an email to contestdept302tr@sftc.org with a copy to all other parties by 4pm stating, without argument, the portion(s) of the tentative ruling that the party contests. The subject line of the email shall include the line number, case name and case number. The text of the email shall include the name and contact information, including email address, of the attorney or party who will appear at the hearing. Counsel for the prevailing party is required to prepare a proposed order which repeats verbatim the substantive portion of the tentative ruling and must email it to contestdept302tr@sftc.org prior to the hearing even if the tentative ruling is not contested. The court no longer provides a court reporter in the Law & Motion Department. Parties may retain their own reporter, who may appear in the courtroom or remotely. A retained reporter must be a California certified court reporter (CSR), for only a CSR's transcript may be used in California courts. If a CSR is being retained, include in your email all of the following: their name, CSR and telephone numbers, and their individual work email address. =(302/RBU)
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Jul 12, 2024 |
CGC23609755
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YOLANDA JONES ET AL VS. GENERAL MOTORS, LLC ET AL
Jul 10, 2024 |
CGC23609805
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EDWARD WESTERMAN VS. FTI CONSULTING, INC. ET AL
Jul 09, 2024 |
CGC24615152
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CLEAR HOMES LLC, A NEW MEXICO LIMITED LIABILITY VS. BRENDAN MICHAEL WEE ET AL
Jul 11, 2024 |
CGC23607972
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Jul 12, 2024 |
CGC22601133
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Jul 10, 2024 |
CGC24613065
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Jul 09, 2024 |
CGC22600572
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JOHN P BERNARD VS. BMW OF NORTH AMERICA, LLC ET AL
Jul 10, 2024 |
CGC23608339
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Preview
1 MANATT, PHELPS & PHILLIPS, LLP Exempt from filing fee pursuant to Barry W. Lee (SBN 88685) Government Code § 6103 2 Justin Jones Rodriguez (SBN 279080) One Embarcadero Center, 30th Floor ELECTRONICALLY 3 San Francisco, California 94111 F I L E D Telephone: (415) 291-7450 Superior Court of California, 4 Facsimile: (415) 291-7474 County of San Francisco Email: bwlee@manatt.com 08/19/2022 5 Email: jjrodriguez@manatt.com Clerk of the Court BY: RONNIE OTERO 6 THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA Deputy Clerk Marcia Scully (SBN 80648) 7 Heather C. Beatty (SBN 161907) Patricia J. Quilizapa (SBN 233745) 8 700 North Alameda Street Los Angeles, CA 90012-2944 9 Telephone: (213) 217-6834 Facsimile: (213) 217-6890 10 Email: hbeatty@METROPOLITANh2o.com 11 Attorneys for Respondent, Defendant, and Cross-Complainant THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA 12 Additional counsel listed on following page 13 14 SUPERIOR COURT OF THE STATE OF CALIFORNIA 15 FOR THE COUNTY OF SAN FRANCISCO 16 17 SAN DIEGO COUNTY WATER Case No. CPF-14-514004, consolidated with AUTHORITY, Case Nos. CPF-16-515282 & CPF-18- 18 516389 Petitioner and Plaintiff, 19 Assigned for all purposes to the v. Hon. Anne-Christine Massullo, Dept. 304 20 THE METROPOLITAN WATER DISTRICT METROPOLITAN WATER DISTRICT 21 OF SOUTHERN CALIFORNIA, ALL OF SOUTHERN CALIFORNIA’S PERSONS INTERESTED IN THE POST-TRIAL BRIEF 22 VALIDITY OF THE RATES ADOPTED BY THE METROPOLITAN WATER DISTRICT 23 OF SOUTHERN CALIFORNIA ON APRIL 8, 2014 TO BE EFFECTIVE JANUARY 1, 2015 24 AND JANUARY 1, 2016; and DOES 1-10, 25 Respondents and Defendants. 26 27 28 MANATT, PHELPS & PHILLIPS, LLP METROPOLITAN’S POST-TRIAL BRIEF ATTORNEYS AT LAW SAN FRANCISCO (CASE NO. CPF-14-514004) 1 2 THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, 3 Respondent, Defendant and Cross- 4 Complainant, 5 vs. 6 SAN DIEGO COUNTY WATER AUTHORITY, 7 Petitioner, Plaintiff and Cross- 8 Defendant. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MANATT, PHELPS & -2- PHILLIPS, LLP METROPOLITAN’S POST-TRIAL BRIEF ATTORNEYS AT LAW SAN FRANCISCO (CASE NO. CPF-14-514004) 1 MILLER BARONDESS LLP Mira Hashmall (SBN 216842) 2 1999 Avenue of the Stars, Suite 1000 Los Angeles, California 90067 3 Telephone: 310-552-4400 Facsimile: 310-552-8400 4 Email: mhashmall@millerbarondess.com 5 MORGAN, LEWIS & BOCKIUS LLP Colin C. West (SBN 184095) 6 One Market, Spear Street Tower San Francisco, California 94105-1596 7 Telephone: (415) 422-1000 Facsimile: (415) 422-1101 8 Email: colin.west@morganlewis.com 9 Attorneys for Respondent, Defendant, and Cross-Complainant THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MANATT, PHELPS & -3- PHILLIPS, LLP METROPOLITAN’S POST-TRIAL BRIEF ATTORNEYS AT LAW SAN FRANCISCO (CASE NO. CPF-14-514004) 1 TABLE OF CONTENTS 2 Page 3 I. INTRODUCTION .............................................................................................................. 1 4 II. SUMMARY OF EVIDENCE ............................................................................................. 2 A. Full-Service, Wheeling, and Exchanges ................................................................. 2 5 B. The Exchange Agreement ....................................................................................... 4 6 III. THE RATE CLAIMS AND DEFENSES ........................................................................... 6 7 A. Wheeling Statutes.................................................................................................... 7 B. Proposition 26 ......................................................................................................... 8 8 C. Government Code § 54999.7(a) .............................................................................. 9 9 D. Government Code § 66013 ................................................................................... 10 10 E. MWD Act § 134 .................................................................................................... 10 F. Common Law ........................................................................................................ 10 11 IV. THE CONTRACT CLAIMS AND DEFENSES .............................................................. 10 12 A. There is no contract for offsetting benefits ........................................................... 11 13 1. The four corners of the contract control .................................................... 11 B. Extrinsic evidence also supports Metropolitan ..................................................... 12 14 1. The 1998 Exchange Agreement ................................................................ 12 15 2. The Exchange Agreement ......................................................................... 12 16 3. Course of Dealing ..................................................................................... 14 4. Contract Performance................................................................................ 14 17 C. The contract claim fails on the breach element ..................................................... 15 18 D. The contract claim fails on the damages element ................................................. 15 19 1. San Diego’s damages are impermissibly speculative ............................... 15 2. San Diego’s claimed damages fatally hinge on Resolution 8520 ............. 16 20 V. SATISFACTION OF THE 2010/2012 JUDGMENT ....................................................... 18 21 VI. ADDITIONAL METROPOLITAN DEFENSES ............................................................. 18 22 A. Dispute Resolution (Metropolitan’s 5th affirmative defense) .............................. 18 B. Administrative Discretion (Metropolitan’s 7th affirmative defense).................... 18 23 C. Unjust Enrichment (Metropolitan’s 21st affirmative defense) ............................. 19 24 D. Mistake (Metropolitan’s 27th and 28th affirmative defenses) .............................. 19 25 VII. METROPOLITAN’S REFORMATION CROSS-CLAIMS ............................................ 19 VIII. METROPOLITAN’S COST-CAUSATION CROSS-CLAIM......................................... 20 26 IX. CONCLUSION ................................................................................................................. 20 27 28 MANATT, PHELPS & PHILLIPS, LLP -i- ATTORNEYS AT LAW SAN FRANCISCO TABLE OF CONTENTS 1 TABLE OF AUTHORITIES 2 Page 3 CASES 4 Baines v. Zuieback, 5 84 Cal. App. 2d 483 (1948)..................................................................................................... 19 Brinton v. Bankers Pension Servs., Inc., 6 76 Cal. App. 4th 550 (1999).................................................................................................... 12 7 City of San Buenaventura v. United Water Cons. Dist., 79 Cal. App. 5th 110 (2022)...................................................................................................... 9 8 Demetris v. Demtris, 9 125 Cal. App. 2d 440 (1954)................................................................................................... 19 10 Donovan v. RRL Corp., 26 Cal. 4th 261 (2001) ............................................................................................................ 20 11 Durant v. Beverly Hills, 12 39 Cal. App. 2d 133 (1940)..................................................................................................... 10 Employers Reins. Co. v. Super. Court, 13 161 Cal. App. 4th 906 (2008).................................................................................................. 12 14 First Am. Title Ins. & Trust Co. v. Cook, 12 Cal. App. 3d 592 (1970)..................................................................................................... 20 15 Hansen v. City of San Buenaventura, 16 42 Cal. 3d 1172 (1986) ....................................................................................................... 8, 10 17 Humphreville v. City of L.A., 58 Cal. App. 5th 115 (2020)...................................................................................................... 9 18 In re Quantification Settlement Agreement Cases, 19 201 Cal. App. 4th 758 (2011).............................................................................................. 4, 14 Metro. Water Dist. of S. Cal. v. Imperial Irrigation Dist., et al., 20 80 Cal. App. 4th 1403 (2000)............................................................................................ 1, 3, 6 21 Moore v. Cal. State Bd. of Accountancy, 2 Cal. 4th 999 (1992) ................................................................................................................ 9 22 Oasis W. Realty, LLC v. Goldman, 23 51 Cal. 4th 811 (2011) ............................................................................................................ 11 24 Parkford Owners for a Better Community v. County of Placer, 54 Cal. App. 5th 714 (2020)...................................................................................................... 7 25 Piscitelli v. Friedenberg, 26 87 Cal. App. 4th 953 (2001).................................................................................................... 15 Rincon Del Diablo Mun. Water Dist. v. San Diego Cty. Water Auth., 27 121 Cal. App. 4th 813 (2004).................................................................................................. 10 28 MANATT, PHELPS & PHILLIPS, LLP - ii - ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES 1 TABLE OF AUTHORITIES (continued) 2 Page 3 San Diego County Water Auth. v. Metro. Water Dist. of S. Cal., 117 Cal. App. 4th 13 (2004).................................................................................................... 19 4 San Diego Cty. Water Auth. v. Metro. Water Dist. of S. Cal., 5 12 Cal. App. 5th 1124 (2017)........................................................................................... passim 6 San Luis Coastal Unified Sch. Dist. v. City of Morro Bay, 81 Cal. App. 4th 1044 (2000).................................................................................................. 18 7 SLPR, L.L.C. v. San Diego Unified Port Dist., 8 49 Cal. App. 5th 284 (2020).................................................................................................... 12 Spurgeon v. Drumheller, 9 174 Cal. App. 3d 659 (1985)................................................................................................... 18 10 Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC, 185 Cal. App. 4th 1050 (2010)................................................................................................ 11 11 Wilson v. City of Laguna Beach, 12 6 Cal. App. 4th 543 (1992)...................................................................................................... 18 13 STATUTES Civ. Code § 1636 .......................................................................................................................... 11 14 Civ. Code § 1638 .......................................................................................................................... 11 15 Civ. Code § 1639 .......................................................................................................................... 11 16 Civ. Code § 3399 .......................................................................................................................... 19 17 Code Civ. Proc. § 870 ................................................................................................................... 14 18 Code Civ. Proc. § 1060 ................................................................................................................. 18 Gov. Code § 54999.1(h) .................................................................................................................. 9 19 Gov. Code § 54999.7(a) .................................................................................................................. 9 20 Gov. Code § 66013(b)(3) .............................................................................................................. 10 21 MWD Admin. Code § 4119 ............................................................................................................ 3 22 MWD Admin. Code § 4405 ............................................................................................................ 3 23 Wat. Code appen. § 109-134 ......................................................................................................... 10 Wat. Code § 1810 .................................................................................................................. 3, 8, 15 24 Wat. Code § 1810(d) ....................................................................................................................... 8 25 Wat. Code § 1811(c) ......................................................................................................... 1, 3, 8, 12 26 Wat. Code § 22762 ........................................................................................................................ 14 27 28 MANATT, PHELPS & PHILLIPS, LLP - iii - ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES 1 I. INTRODUCTION 2 The core issue in these cases is San Diego’s allegation that Metropolitan failed to provide 3 credit for any offsetting benefits in the price term of the parties’ 2003 Amended and Restated 4 Exchange Agreement. (PTX65 [“Exchange Agreement”].) San Diego’s first three causes of action 5 challenge Metropolitan’s generally applicable transportation rate components and former preset 6 wheeling rate on the theory that Water Code §§ 1810 et seq. (“Wheeling Statutes”) and other laws 7 somehow required Metropolitan to make an offsetting benefits determination and apply a credit to 8 San Diego. That theory makes no sense. The challenged rates are all generally applicable, not 9 transaction specific. The Wheeling Statutes require an offsetting benefits credit, if at all, only on a 10 case-by-case basis. Metro. Water Dist. of S. Cal. v. Imperial Irrigation Dist., et al. (“IID”), 80 11 Cal. App. 4th 1403, 1420 (2000). The other laws are silent on offsetting benefits. 12 San Diego’s fourth cause of action alleges that Metropolitan breached the Exchange 13 Agreement by not providing an offsetting benefits credit. But the parties did not intend the price 14 to include offsetting benefits. The parties executed the contract on October 10, 2003. San Diego 15 did not request an offsetting benefits determination until March 11, 2018 (PTX925)—15 years 16 later and after its 2017 appellate loss on most contract damages it sought in the parties’ earlier 17 litigation. Seeking a new basis for damages, San Diego now contends it is entitled to a $334M 18 offsetting benefits credit for just 2015-2020. San Diego’s 15-year silence about such a valuable 19 “benefit” completely negates intent. 20 San Diego also asks the Court to invent an offsetting benefit that has no basis in law. The 21 Wheeling Statutes concern only benefits to a conveyance system owner “for the use of the 22 conveyance system.” Wat. Code § 1811(c). San Diego asks the Court to contradict that language 23 to rule that an offsetting benefit may be based on introducing a new water supply to a region. San 24 Diego’s only hook for its novel theory is Metropolitan’s Resolution 8520, adopted in 1997 and 25 repealed in 2020. Resolution 8520 was not applicable to the Exchange Agreement; it applied only 26 to wheeling transactions of one year or less to member agencies. In those cases, Metropolitan 27 elected to consider a discount to its wheeling rate based on regional water supply benefits 28 provided to Metropolitan’s service area on a case-by-case basis. No evidence exists that any party M ANATT , P HELPS & P HILLIPS , LLP -1- ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 intended Resolution 8520 to apply to the 110-year Exchange Agreement. San Diego’s former 2 General Manager and lead negotiator of the Exchange Agreement testified that Resolution 8520 3 did not govern the contract’s price term. (Reporter’s Transcript [“RT”] 800:7-801:10, 805:12-25.) 4 And even if it did apply, it includes numerous conditions precedent that San Diego did not meet. 5 Metropolitan is entitled to judgment on every claim and cross-claim for the reasons 6 detailed below, discussed in Metropolitan’s pre-trial brief, and presented at trial. 7 II. SUMMARY OF EVIDENCE 8 Metropolitan is a voluntary cooperative of 26 member agencies, including San Diego. 9 Metropolitan delivers wholesale water to its member agencies from two principal sources: the 10 Colorado River via the Colorado River Aqueduct (“CRA”) and the State Water Project (“SWP”) 11 via the California Aqueduct. San Diego Cty. Water Auth. v. Metro. Water Dist. of S. Cal., 12 Cal. 12 App. 5th 1124, 1131 (2017) (“SDCWA”). Metropolitan is required by statute to establish rates for 13 the water it delivers to generate sufficient revenue to pay its costs. Wat. Code appen. § 109-134. 14 Metropolitan adopted an unbundled rate structure in 2003, allocating its costs to supply 15 and transportation rate components. (RT 1521:23-1524:28.) Supply rates recover Metropolitan’s 16 cost of obtaining water supply, as well as maintaining and developing additional water supplies. 17 Transportation rates recover the costs of constructing, operating, and maintaining Metropolitan’s 18 water conveyance infrastructure. The transportation rates consist of a system access rate 19 “designed to recover the capital, operating, and maintenance costs associated with transportation 20 facilities”; a system power rate designed to “recover[] the cost of pumping water through the 21 [SWP] and [CRA] to Southern California; and formerly, a water stewardship rate (“WSR”) 22 “designed to recover the costs of conservation programs and other water management programs 23 that reduce and defer system capacity expansion costs.” SDCWA, 12 Cal. App. 5th at 1138. 24 A. Full-Service, Wheeling, and Exchanges 25 Metropolitan provides full-service water (Metropolitan supplies and transports water) to 26 its member agencies. Metropolitan provided wheeling service to its member agencies for 27 transactions of one year or less with a preset wheeling rate until the rate’s repeal in August 2020. 28 Other wheeling (for over one year; to third parties; and after the repeal, to member agencies for M ANATT , P HELPS & 2 P HILLIPS , LLP ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 one year or less) is contractual, with a negotiated price. Water exchanges have always been 2 contractual, with a negotiated price. Unlike exchanges, wheeling involves transporting another 3 party’s water through Metropolitan’s system; the water is not owned by Metropolitan. 4 The full-service rate includes the supply and transportation rate components. The preset 5 rate for wheeling service included the system access rate and former WSR, but not the system 6 power rate or any supply rates. (MWD Admin. Code §§ 4405; 4119.) Actual power costs and an 7 administrative fee were also charged for wheeling. (RT 1522:16-1524:28.) 8 The Wheeling Statutes define “wheeling” as the use of a public agency’s facilities to 9 convey water that is not owned by the agency, if there is unused capacity, in exchange for fair 10 compensation, which the facility owner has discretion to determine. Wat. Code § 1810. Fair 11 compensation is defined as: “reasonable charges incurred by the owner of the conveyance system, 12 including capital, operation, maintenance, and replacement costs, increased costs from any 13 necessitated purchase of supplemental power, and including reasonable credit for any offsetting 14 benefits for the use of the conveyance system.” Id. § 1811(c). Offsetting benefits under the 15 Wheeling Statutes are limited to benefits “for the use of the conveyance system.” Other 16 benefits—e.g., benefits from water supply—are not “offsetting benefits” from “use of the 17 conveyance system.” (See PTX26, MWD2010-00264776; RT 457:16-24, 1515:19-1517:23.) 18 In 1997, Metropolitan’s Board of Directors adopted Resolution 8520, supporting the pre- 19 set wheeling rate. (DTX23.) Resolution 8520 provided for a reduction for benefits, if any, on a 20 case-by-case basis for a particular wheeling transaction not exceeding one year: “The wheeling 21 rates shall be reduced to reflect the regional water supply benefits provided to Metropolitan’s 22 service area, if any, on a case-by-case basis in response to a particular wheeling transaction. The 23 regional benefits, if any shall be calculated by Metropolitan in the same manner as such benefits 24 are calculated for use in the Local Projects and Groundwater Recovery Program.” (DTX23.) 25 In 2000, the Court of Appeal upheld Metropolitan’s use of a fixed wheeling rate for short- 26 term transactions, with any offsetting benefits to be determined separately. IID, 80 Cal. App. 4th 27 at 1407-08. The court noted that “Metropolitan will provide offsetting benefits on a case-by-case 28 basis.” Id. at 1420. On August 18, 2020, with no transactions governed by the wheeling rate M ANATT , P HELPS & 3 P HILLIPS , LLP ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 occurring in over 10 years, the Metropolitan Board of Directors repealed the preset wheeling rate 2 and Resolution 8520. (DTX2529; RT 1387:16-1388:25.) 3 B. The Exchange Agreement 4 Metropolitan is one of a few California entities with rights to Colorado River water. (RT 5 1167:9-21.) Imperial Irrigation District (“IID”) also has rights to Colorado River water and it has 6 sold conserved Colorado River water to other parties. The initial purchaser of IID’s conserved 7 water was Metropolitan in 1988. During 2015-2020, Metropolitan paid approximately $120/acre- 8 foot (“AF”) for its IID water. (RT 1710:11-26, 1711:23-1712:7.) Metropolitan was able to acquire 9 Colorado River water during the same time period from other sources for between $120/AF and 10 $375/AF. (RT 1710:11-26, 1711:23-1713:24, 1715:1-1717:3, 1721:25-1726:10.) 11 In 1998, a decade later, IID and San Diego, a Metropolitan member agency without 12 Colorado River rights, entered a similar agreement (“the IID-San Diego Agreement”). SDCWA, 13 12 Cal. App. 5th at 1135. San Diego paid approximately $679/AF for its IID water during 2015- 14 2020—more than five times as much as Metropolitan. (PTX1175A.) 15 IID agreed to transfer up to 200,000 AF of conserved Colorado River water per year to 16 San Diego, contingent on Metropolitan agreeing to accept delivery of the transfer water from IID 17 at Lake Havasu, and deliver a like quantity of water to San Diego. San Diego proposed a 18 wheeling agreement but the parties were unable to negotiate one. (RT 1518:7-1519:19.) Instead, 19 the parties entered into a 30-year exchange agreement. SDCWA, 12 Cal. App. 5th at 1136. 20 Under the 1998 Exchange Agreement (DTX28), San Diego agreed to pay Metropolitan 21 $90/AF with annual increases. The agreement was conditioned on the state legislature’s 22 appropriation of $235 million to Metropolitan for projects, including to line the earthen All- 23 American and Coachella Canals to conserve a water supply that would otherwise be lost through 24 seepage (“canal lining water”). There were no exchanges under the 1998 contract because 25 Colorado River water rights first needed to be quantified. (RT 422:10-14.) 26 In 2003, various water agencies with rights to Colorado River water negotiated numerous 27 agreements collectively referred to as the “Quantification Settlement Agreement” (“QSA”). The 28 Exchange Agreement, which was amended under the QSA, is one of those agreements. In re M ANATT , P HELPS & 4 P HILLIPS , LLP ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 Quantification Settlement Agreement Cases, 201 Cal. App. 4th 758, 788 (2011) (“QSA Cases”). 2 Although the Exchange Agreement price term did not need to change as part of the QSA, San 3 Diego wanted to change it and proposed two options. (RT 1368:14-1371:14, 1527:9-13.) 4 Under Option 1, San Diego would continue to pay the same price negotiated in the 1998 5 Exchange Agreement. (RT 1369:15-28, 1527:9-1528:10.) Under Option 2—proposed in late 6 August 2003 by Scott Slater, San Diego’s co-lead negotiator—Metropolitan would assign to San 7 Diego Metropolitan’s right to approximately 77,000 AF of conserved canal lining water annually 8 for 110 years, as well as Metropolitan’s $235 million legislative appropriation for canal lining and 9 other projects. (RT 197:9-198:20, 595:23-596:5, 1369:15-1370:6.) San Diego agreed that the 10 value of Metropolitan’s assignment of the canal lining water was high (RT 482:7-17), and 11 proposed that in return, it would pay a higher contract price based on Metropolitan’s generally 12 applicable unbundled transportation rates. (DTX837 [9/16/2003 Campbell memo]; RT 242:7-12, 13 462:9-463:9.) Metropolitan would exchange both the IID water and the canal lining water. 14 Metropolitan allowed San Diego to choose between the two options. (RT 606:5-7, 1371:2- 15 5, 1529:12-16.) San Diego selected Option 2 and Metropolitan agreed. (RT 1370:17-1371:14, 16 1529:2-4.) Neither option included a request by San Diego for an offsetting benefits credit under 17 the Wheeling Statutes or any other theory; San Diego’s documents analyzing the options are 18 silent on offsetting benefits. (See DTX837; DTX 0855; RT 202:8-17, 204:6-13.) 19 On October 10, 2003, Metropolitan and San Diego entered the Exchange Agreement and 20 an Allocation Agreement. The consideration package was contained across the two documents: 21 the Exchange Agreement set forth the price, and the Allocation Agreement set forth 22 Metropolitan’s assignment to San Diego of its $235 million appropriation and the canal lining 23 water for 110 years. (PTX65; PTX67; RT 584:24-585:16.) Neither the Exchange Agreement nor 24 the Allocation Agreement included offsetting benefits as part of the consideration. The term of 25 the Exchange Agreement is 110 years—the same length as the assignment of the canal lining 26 water and more than a century longer than a transaction governed by Resolution 8520. 27 Section 5.2 of the Exchange Agreement set forth the new price term San Diego had 28 proposed and selected: “The price on the date of Execution of this Agreement shall be [$253.00]. M ANATT , P HELPS & 5 P HILLIPS , LLP ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 Thereafter, the Price shall be equal to the charge or charges set by Metropolitan’s Board of 2 Directors pursuant to applicable law and regulation and generally applicable to the conveyance of 3 water by Metropolitan on behalf of its member agencies …” (PTX65 [emphasis added].) The 4 terms “wheeling,” “fair compensation,” and “offsetting benefits” do not appear in Section 5.2. 5 And there is no written evidence that San Diego informed Metropolitan that it thought the price 6 term included offsetting benefits. (RT 258:1-10, 648:6-649:3, 668:10-12, 790:12-25, 792:5-793:3, 7 794:3-5, 795:5-17.) Instead, the parties agreed the Exchange Agreement price of charges 8 “generally applicable to the conveyance of water by Metropolitan on behalf of its member 9 agencies means the transportation rate components of Metropolitan’s full-service rate: the system 10 access rate, system power rate, and [WSR].” SDCWA, 12 Cal. App. 5th at 1138-39. 11 Under the Exchange Agreement, San Diego makes the IID and canal lining water 12 available to Metropolitan at Lake Havasu (RT 1272:1-4, 1535:3-18, 1861:23-1862:6, 1992:3-8) 13 where it becomes Metropolitan’s water (RT 1272:6-9, 1272:22-26, 1535:3-18). In return, 14 Metropolitan delivers a like quantity of water from any source(s) in San Diego, in monthly 15 intervals. (RT 1450:4-1451:6.) The contract does not provide for the transportation of San Diego 16 water; instead, it calls for the exchange of water that becomes Metropolitan water at Lake 17 Havasu, before it enters Metropolitan’s system. (PTX65 § 4.1; RT 1450:4-1451:6.) 18 III. THE RATE CLAIMS AND DEFENSES 1 19 San Diego cites several statutes and other law to argue that Metropolitan improperly set its 20 rates by not including a reasonable credit for offsetting benefits in them. That position fails. 21 First, the rates are generally applicable to all member agencies. It is not possible and is 22 nonsensical to reduce all rates by an offsetting benefits credit for all, regardless of a connection to 23 an applicable transaction. And that is not what San Diego seeks; it wants its own unique credit. 24 Second, the preset wheeling rate, until its repeal, was subject to an offsetting benefits 25 credit under Resolution 8520 on a case-by-case basis, which as discussed above, the Court of 26 Appeal already affirmed. IID, 80 Cal. App. 4th at 1407-08, 1420, 1434. 27 1 San Diego’s 1st through 3rd causes of action; Metropolitan’s 1st, 2nd, and 5th cross-claims in 28 2014/2016 and 4th and 7th cross-claims in 2018. M ANATT , P HELPS & 6 P HILLIPS , LLP ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 Third, San Diego’s offsetting benefits rate challenges fail because Metropolitan’s 2 wheeling rate and Resolution 8520 applied only to short term transactions of one year or less. See 3 SDCWA, 12 Cal. App. 5th at 1138 n.7. There are no such transactions at issue in these cases. 4 Fourth, the transportation rate components of Metropolitan’s full-service water rate are for 5 the sale and conveyance of Metropolitan water to Metropolitan’s member agencies. They are not 6 applicable to wheeled water or subject to the Wheeling Statutes. 7 Fifth, review of Metropolitan’s generally applicable rates is limited to the administrative 8 record for each rate year. SDCWA, 12 Cal. App. 5th at 1145. San Diego did not present evidence 9 at trial regarding insufficiency in the 2014, 2016, or 2018 administrative records. 10 Sixth, Metropolitan’s expert witness, Richard Giardina, analyzed Metropolitan’s rate- 11 setting methodology and Metropolitan’s application of that methodology in 2015-2020 as 12 evidenced in the administrative record for each biennial rate-setting period (2014, 2016, and 13 2018). Giardina—the principal author of the American Water Works Association’s M1 Principles 14 of Water Rates, Fees, and Charges Manual (“M1”) for the years at issue—concluded that 15 Metropolitan’s methodology was consistent with industry standards articulated in the M1 and that 16 Metropolitan adhered to that methodology when setting its rates in 2015-2020. (RT 1665:14- 17 1668:3.) The administrative records support Metropolitan’s rates. 2 18 Seventh, the rate challenges are moot as to the wheeling rate (Metropolitan’s 10th 19 affirmative defense). Metropolitan’s Board repealed the wheeling rate in August 2020. 20 (DTX2529.) San Diego’s claims with respect to that rate are thus moot. See Parkford Owners for 21 a Better Community v. County of Placer, 54 Cal. App. 5th 714, 722 (2020). 22 Finally, the laws San Diego cites also support judgment for Metropolitan: 23 A. Wheeling Statutes 24 San Diego misinterprets the Wheeling Statutes, which do not require generally applicable 25 rates to include a credit for offsetting benefits. Offsetting benefits apply, if at all, only to a 26 particular transaction where the conveyance system owner receives benefits by moving water 27 2 See also MWDRECORD2014_0000892-981 (2014 COS); MWDRECORD2016_0001540-2034 (2016 COS); MWDRECORD2018_0000175-873 (2018 COS); MWDRECORD2016_0049124- 28 143 (2016 Giardina Letter); MWDRECORD2018_0029861-900 (2018 Giardina Letter). M ANATT , P HELPS & 7 P HILLIPS , LLP ATTO RNEY S AT LAW METROPOLITAN’S POST-TRIAL BRIEF SAN FRA NCI S CO (CASE NO. CPF-14-514004) 1 owned by another party through its system. Wat. Code § 1811(c). (RT 1515:19-1517:23.) 2 Other conditions must also be satisfied before the Wheeling Statutes’ fair compensation 3 provision is triggered. The provision applies only to “the use of a water conveyance facility which 4 has unused capacity, for the period of time for which that capacity is available.” Wat. Code § 5 1810. Metropolitan’s transportation rate components are not rates for the use of available space. 6 Available capacity was required under the preset wheeling rate, but there is no applicable 7 transaction at issue. The Wheeling Statutes also condition use for fair compensation on lack of 8 injury to legal use and unreasonable effect on the economy or environment. Wat. Code § 1810(d). 9 Finally, the core inquiry of the Wheeling Statutes and every other law that San Diego cites 10 in its first three causes of action is the same: reasonableness. “Rates established by [a] lawful rate- 11 fixing body are presumed reasonable, fair, and lawful.” See Hansen v. City of San Buenaventura, 12 42 Cal. 3d 1172, 1180 (1986), superseded on other grounds in Citizens for Fair REU Rates v. 13 City of Redding, 6 Cal. 5th 1 (2018). San Diego has not presented evidence to overcome that 14 presumption. Metropolitan’s rates in 2015-2020 were reasonable because they were set following 15 a cost-of-service methodology in which Metropolitan sought to recover only its costs with each of 16 the rates it set. (RT 1646:21-1650:25, 1667:15-1668:3, 1672:6-1674:9.) 3 The evidence 17 demonstrates a reasonable relationship between Metropolitan’s rates and its costs. (RT 1174:10- 18 1175:22,