Order: IN RE: SAN DIEGO COUNTY WATER AUTHORITY

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LER OF AG COURT
BY: z
Deputy Clerk
SUPERIOR COURT OF CALIFORNIA.
COUNTY OF SAN FRANCISCO
DEPARTMENT 306

Lead Case No. CPF-14-514004
Consolidated with Case Nos. CPF-16-515282
and CPF-18-516389

IN RE:
ORDER GRANTING IN PART AND
SAN DIEGO COUNTY WATER AUTHORITY DENYING IN PART METROPOLITAN
WATER DISTRICT OF SOUTHERN

CALIFORNIA’S MOTION FOR SUMMARY
ADJUDICATION

The above-entitled matter came on regularly for hearing on April 13, 2022. Counsel for the
parties were present. The appearances are as stated in the record. The matter was reported. At the
hearing, the Court ordered limited supplemental briefing on cases cited at the hearing but not discussed in
the papers and set a filing deadline of April 18, 2022. The parties timely filed supplemental briefing on
April 18, 2022. Having considered the argument and written submissions of all parties and being fully
advised, Metropolitan Water District of Southern California’s (“Metropolitan”) Motion for Summary
Adjudication is granted in part and denied in part.' Metropolitan’s Motion is granted as to the eighth

| Metropolitan’s Request for Judicial Notice is granted in part and denied in part. Metropolitan’s Request
for Judicial Notice is granted as to Exhibits A, E, F, G, and H pursuant to Evidence Code § 452(h).
Metropolitan’s Request for Judicial Notice is granted as to Exhibits I and K pursuant to Evidence Code §
452(c). Metropolitan’s Request for Judicial Notice is denied as to Exhibit C. San Diego’s Request for
Judicial Notice is granted as to Exhibits C through K, M through P, W, T, and X pursuant to Evidence
Code § 452(c). San Diego’s Request for Judicial Notice is granted as to Exhibits L and W pursuant to
Evidence Code § 452(h). San Diego’s Request for Judicial Notice is denied as to Exhibits R, S, U, and V.
Metropolitan’s Reply Request for Judicial Notice is granted pursuant to Evidence Code § 452(c).

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary Adjudicationoem ND WH FF WN

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cause of action in the 2014 and 2016 Cross-Complaints and the tenth cause of action in the 2018 Cross-
Complaint for declaratory relief. The remainder of Metropolitan’s Motion is denied.
BACKGROUND

Respondent and Defendant Metropolitan is a public agency that imports, stores, and transports water
throughout southern California. (2014 First Amended Complaint (“FAC”), 2.)? Metropolitan has twenty-
six member agencies, including Petitioner and Plaintiff San Diego County Water Authority (“San Diego”).
(Id. at | 16.) In addition to selling water to its member agencies, Metropolitan provides wheeling service
to transport Non-Metropolitan Water to third parties. (Jd. at §21.) “Wheeling” is the industry term of art
for the “use of a water conveyance facility by someone other than the owner or operator to transport water.”
(d., quoting San Diego County Water Authority v. Metropolitan Water District (2017) 12 Cal.App.Sth
1124, 1135 («SDCWA TI”’).) Because Metropolitan owns the only water distribution facilities linking the
Colorado River to San Diego’s service area, San Diego and Metropolitan negotiated the 2003 Exchange
Agreement (“Exchange Agreement”) for delivery of San Diego’s Non-Metropolitan Water to San Diego’s
own distribution and water storage facilities. (FAC, { 18.) Under the Exchange Agreement, the parties
agreed the price for transporting San Diego’s Non-Metropolitan Water “shall be equal to the charge or
charges set by Metropolitan’s Board of Directors pursuant to applicable law and regulation and generally
applicable to the conveyance of water by Metropolitan on behalf of its member agencies.” (Jd. at § 20, Ex.
A [the Exchange Agreement], § 5.2.) Metropolitan also “imposes a Water Stewardship Rate on all water
sales and wheeling transactions, including the transportation of [San Diego’s] Non-Metropolitan Water
under the Exchange Agreement, and uses these funds to pay for its demand management and water
conservation programs.” (Id. at § 16.) Non-Metropolitan Water is independent conserved water from the
Colorado River and lining of the All-American and Coachella Canals procured by San Diego. (Id. at § 17.)

Under the Wheeling Statutes (Water Code, §§ 1810 et seq.), Metropolitan cannot charge more than
“fair compensation” for the conveyance of non-Metropolitan water. (Id. at {22.) The statutory definition
of “fair compensation” allows Metropolitan to recover “reasonable charges incurred by the owner of the

conveyance system, including capital, operation, maintenance and replacement costs, [and] increased costs

? The Court cites the FAC in the 2014 action for background as the allegations are the same or similar
across all three actions.
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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary AdjudicationCem rN DH BF WwW NY

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from any necessitated purchase of supplemental power.” (Jd.) That statutory definition also expressly
requires Metropolitan to give wheelers, such as San Diego, “reasonable credit for any offsetting benefits
for the use of the conveyance system.” (Id.)

The complaints in each of the three actions advance two theories of illegality and breach. First, San
Diego asserts Metropolitan unlawfully included in its wheeling and transportation rates the Water
Stewardship Rate (“WSR”)—a charge unrelated to transportation and used instead to pay the costs of
demand management projects—and thus breached the parties’ Exchange Agreement. Second, San Diego
asserts that Metropolitan’s failure to provide the statutorily and contractually mandated credit for offsetting
benefits was also unlawful and breached the Exchange Agreement.

Metropolitan now moves for summary adjudication on the following grounds: (1) San Diego’s
breach of contract claim fails as a matter of law because the Exchange Agreement’s price term does not
include or require a determination of offsetting benefits under the Wheeling Statutes and San Diego cannot
raise a triable issue of material fact that San Diego is estopped from claiming the Exchange Agreement’s
price term incorporates or requires a determination of offsetting benefits under the Wheeling Statutes; (2)
Metropolitan is entitled to judgment as a matter of law on its claims for declaratory relief? because the
Exchange Agreement’s price term does not include or require a determination of offsetting benefits under
the Wheeling Statutes and as a conveyance facility owner, Metropolitan determines any offsetting benefits;
(3) San Diego cannot raise a triable issue of material fact as to Metropolitan’s affirmative defense and cross-
claim for judicial estoppel* when the Exchange Agreement’s price term does not incorporate or require a
determination of offsetting benefits under the Wheeling Statutes; and (4) Metropolitan is entitled to
judgment as a matter of law on its reformation claims* because San Diego cannot raise a triable issue of

material fact. (Motion, 4-5.) San Diego opposes Metropolitan’s Motion.

3 The sixth cause of action in the 2014 Cross-Complaint filed March 22, 2021 (“2014 Cross-Complaint”).
The sixth cause of action in the 2016 Cross-Complaint filed March 22, 2021 (“2016 Cross-Complaint”).
The eighth cause of action in the 2018 Cross-Complaint filed July 29, 2021 (“2018 Cross-Complaint”).
‘ The fourteenth affirmative defense in the 2014 Answer to FAC filed March 22, 2021, 2016 Answer to
Second Amended Complaint (“SAC”) filed March 23, 2021, and 2018 Answer to SAC filed July 29,
2021. The seventh and eighth causes of action in the 2014 and 2016 Cross-Complaints and ninth and ~
tenth causes of action in the 2018 Cross-Complaint.
5 The ninth cause of action in the 2014 and 2016 Cross-Complaints and the eleventh cause of action in the
2018 Cross-Complaint.
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Jn Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary AdjudicationLEGAL STANDARD

“A party may move for summary adjudication as to one or more causes of action within an action,
one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if the
party contends that the cause of action has no merit, that there is no affirmative defense to the cause of
action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to a
claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either
owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be
granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or
an issue of duty.” (Code of Civ. Proc., § 437c(f)(1).) “A motion for summary adjudication may be made
by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural
respects as a motion for summary judgment.” (Code of Civ. Proc., § 437c(f)(2).)

“The purpose of the law of summary judgment is to provide courts with a mechanism to cut
through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact
necessary to resolve their dispute.” (Aguilar v. Atl. Richfield Co. (2001) 25 Cal.4th 826, 843.)

“First, and generally, from commencement to conclusion, the party moving for summary judgment
bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to
judgment as a matter of law.” (Aguilar, 25 Cal.4th at 850.) “There is a triable issue of material fact if,
and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the
party opposing the motion in accordance with the applicable standard of proof.” (id.) “A defendant bears
the burden of persuasion that ‘one or more elements of the ‘cause of action’ in question ‘cannot be
established,’ or that ‘there is a complete defense’ thereto.” (Jd. [citations omitted]; Code of Civ. Proc., §
437c(p).)

“Second, and generally, the party moving for summary judgment bears an initial burden of
production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he
carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of
production of his own to make a prima facie showing of the existence of a triable issue of material fact.”

(Aguilar, 25 Cal.4th at 850.) “A burden of production entails only the presentation of ‘evidence.”” (Jd.)

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary Adjudication“A prima facie showing is one that is sufficient to support the position of the party in question.” (Id. at
851.)

“Third, and generally, how the parties moving for, and opposing, summary judgment may each
carry their burden of persuasion and/or production depends on which would bear what burden of proof at
trial.” (Aguilar, 25 Cal.4th at 851.) “Thus, if a plaintiff who would bear the burden of proof by a
preponderance of evidence at trial moves for summary judgment, he must present evidence that would
require a reasonable trier of fact to find any underlying material fact more likely than not-otherwise, he
would not be entitled to judgment.as a matter of law, but would have to present his evidence to a trier of
fact. By contrast, if a defendant moves for summary judgment against such a plaintiff, he must present
evidence that would require a reasonable trier of fact not to find any underlying material fact more likely
than not-otherwise, he would not be entitled to judgment as a matter of law, but would have to present his
evidence to a trier of fact.” (id.)

The pleadings delimit the scope of the issues and frame the outer measure of materiality in a
summary judgment proceeding. (Hutton v. Fidelity Nat'l Title Co. (2013) 213 Cal.App.4th 486, 493;
Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1250.)

DISCUSSION
I. Price Term of Exchange Agreement

The Exchange Agreement provides that San Diego “shall pay the Price for each acre-foot of
Exchange Water (including Early Exchange Water, if applicable) delivered by Metropolitan at the
Metropolitan Point(s) of Delivery.” (Metropolitan’s Evidence®, Ex. E, § 5.1.) “Exchange Water’ means,
for each Year, water that is delivered to [San Diego] by Metropolitan at the Metropolitan Point(s) of
Delivery in a like quantity as the quantity of water that [San Diego] has Made Available to Metropolitan
under the Transfer Agreement and/or the Allocation Agreement and this Agreement for the same Year.”
(id. at Ex. E, § 1.1(m).) In addition, Exchange Water can “be from whatever source or sources and shall
be delivered using such facilities as may be determined by Metropolitan, provided that the Exchange
Water delivered in each Year is of like quality to the Conserved Water and/or the Canal Lining Water

6 “Metropolitan’s Evidence” refers to Metropolitan’s Appendix of Evidence in Support of Motion for
Summary Adjudication filed February 22, 2022.
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In Re: San Diego County Water Authority CPF-14-514004
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which is Made Available to Metropolitan at the [San Diego] Point of Transfer in such Year.” (Jd.) “Early
Exchange Water” is defined as “the Exchange Water to be delivered by Metropolitan to [San Diego] in
exchange for Early Transfer Water to be Made Available by [San Diego] to Metropolitan under this
Agreement.” (Id. at Ex. E, § 1.1(j).) “The Price” or “Price Term” of the Exchange Agreement states:

The Price on the date of Execution of this Agreement shall be Two Hundred Fifty Three Dollars
($253.00). Thereafter, the Price shall be equal to the charge or charges set by Metropolitan’s
Board of Directors pursuant to applicable law and regulation and generally applicable to the
conveyance of water by Metropolitan on behalf of its member agencies.

(id. at Ex. E, § 5.2.)

A. Breach of Contract

San Diego alleges Metropolitan breached the Price Term of the Exchange Agreement “by setting
rates for the transportation of [San Diego’s] Non-Metropolitan Water that violate the substantive
provisions of California law.” (2014 FAC, { 90; 2016 SAC, § 82; 2018 SAC, { 90.) San Diego’s breach
of contract claim is premised on allegations that (1) Metropolitan unlawfully included the Water
Stewardship Rate in its adopted rates and (2) Metropolitan failed to provide a reasonable credit for
offsetting benefits. (2014 FAC, { 44; 2016 SAC, ¢ 44; 2018 SAC, 4 53-54.) San Diego alleges that
“Metropolitan’s Board Resolution 8520 . . . acknowledges Metropolitan’s statutory obligation to
‘includ[e] reasonable credit for any benefits for the use of its conveyance system.”” (2014 FAC, 23;
2016 SAC, { 23; 2018 SAC, 4 24.)

To prevail on a breach of contract claim, the plaintiff must prove: (1) the existence of a contract;
(2) plaintiff's performance or excuse for nonperformance; (3) breach; and (4) damages. (Coles v. Glaser
(2016) 2 Cal.App.5th 384, 391, quoting Hamilton v. Greenwich Investors, XXVI, LLC (2011) 195
Cal.App.4th 1062, 1614.)

Metropolitan asserts San Diego’s cause of action for breach of contract fails as to the first element
because there is no contractual requirement for Metropolitan to analyze or provide offsetting benefits
credits under the Wheeling Statutes. (Opening Brief, 10.) San Diego opposes on the ground that the
Court of Appeal previously rejected Metropolitan’s arguments regarding the Price Term, therefore,

Metropolitan’s arguments are barred by collateral estoppel. (Opposition, 14.)

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary AdjudicationFirst, Metropolitan argues offsetting benefits under the Wheeling Statutes do not apply as the
Exchange Agreement is silent. (Opening Brief, 10; SUMF 22 [“The terms ‘wheeling,’ ‘fair
compensation,’ and ‘offsetting benefits’ do not appear in Section 5.2 of the Exchange Agreement.”].)
However, the Exchange Agreement is silent as to any specific applicable law. Rather, the Exchange
Agreement includes a general provision that “the Price shall be equal to the charge or charges set by
Metropolitan’s Board of Directors pursuant to applicable law and regulation.” (Metropolitan Evidence,
Ex. E, § 5.2.) If the Court were to accept Metropolitan’s argument, it would create a slippery slope where
Metropolitan could avoid its contractual obligations to set prices in accordance with applicable laws and
regulations if the law and/or regulation is not explicitly stated in the Exchange Agreement. The Court
declines to make such a finding.

Moreover, in SDCWA I, the Court of Appeal applied the Wheeling Statutes to determine whether
substantial evidence supported the fair compensation determination by Metropolitan. (SDCWA I, 12
Cal.App.5th at 1144-1151; see also id. at 1154 [“the evidence sufficiently establishes a violation of the
contractual price term, not just the wheeling rate.”].) “‘Fair compensation’ means the reasonable charges
incurred by the owner of the conveyance system, including capital, operation, maintenance, and
replacement costs, increased costs from any necessitated purchase of supplemental power, and including
reasonable credit for any offsetting benefits for the use of the conveyance system.” (Water Code, §
1811(c).) Application of the Wheeling Statutes includes offsetting benefits. (See Water Code, §§ 1810 et
seq.)

Second, Metropolitan argues “the plain language of the Exchange Agreement bases the price on
specific ‘charges set by Metropolitan,’ which the parties agreed were the transportation rates components
of the full service rate.” (Opening Brief, 10; SUMF 23.) Metropolitan does not cite to the Exchange
Agreement as supporting evidence. Rather, Metropolitan cites to the testimony of Jeff Kightliner,
General Manager and Chief Executive Officer of Metropolitan, during phase two of trial in the prior
litigation. (See Metropolitan Evidence, Ex. O, 1269.) Mr. Kightliner testified that during negotiations,
Option-2 contemplated Metropolitan’s full conveyance of costs at $253 an acre-foot, which included costs

for system access, water stewardship, and power. (Id. at Ex. O, 1292, 1294.) Negotiations also describe

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary Adjudicationthe $253 cost an acre-foot as a “wheeling rate.” (Jd. at Ex. O, 1294: 12-21.) The Court of Appeal in
SDCWA I, provided a breakdown of Metropolitan’s rates under the Exchange Agreement.

Metropolitan’s “supply” rates are designed to recover the costs of operating and maintaining its
vast water conveyance infrastructure. The transportation rates consist of three subcomponents. A
“system access rate” is designed to recover the capital, operating, and maintenance costs
associated with transportation facilities, including “conveyance” facilities that transport water
from the State Water Project and Colorado River Aqueduct and “distribution” facilities that
transport water within Metropolitan’s service area. (Admin. Code, § 4123) A “system power rate”
recovers the cost of pumping water through the State Water Project and Colorado River Aqueduct
to Southern California. (Admin. Code, § 4125.) A “water stewardship rate” is designed to recover
the costs of conservation programs and other water management programs that reduce and defer
system capacity expansion costs.

(SDCWA I, 12 Cal-App.5th at 1138.)

In SDCWA I, the Court of Appeal concluded substantial evidence did not support “Metropolitan’s
determination that the water stewardship rate used to fund conservation programs is recoverable as ‘fair
compensation’ for the use of the conveyance system.” (SDCWA I, 12 Cal.App.5th at 1151.) Asa result,
the Court of Appeal held Metropolitan breached the Exchange Agreement because the:“water stewardship
rate was unlawfully charged for the conveyance of water.” (Id. at 1154.) A reasonable credit for any
offsetting benefits is part of fair compensation. (See Water Code, § 1811(c).) As the transportation rate
components include a water stewardship rate that is subject to fair compensation, the Court rejects
Metropolitan’s argument.

The Court declines to address Metropolitan’s arguments regarding extrinsic evidence such as
objective manifestations and subjective intent pursuant to the parol evidence rule. (See Riverisland Cold
Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1174 [The parol
evidence rule “is founded on the principle that when the parties put all the terms of their agreement in
writing, the writing itself becomes the agreement. The written terms supersede statements made during
the negotiations. Extrinsic evidence of the agreement’s terms is thus irrelevant, and cannot be relied
upon.”] (Emphasis in original).) Metropolitan does not argue that an exception to the parol evidence rule
applies. (See id. at 1174 [a broad exception to the parol evidence rule is when the validity of the
agreement is in dispute such as mistake, fraud, duress, undue influence, illegality, alteration, lack of

consideration, or another invalidating cause].)

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In Re: San Diego County Water Authority CPF-14-514004
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Moreover, even if Metropolitan could burden shift as to offsetting benefits, summary adjudication
would not dispose of San Diego’s entire cause of action for breach of contract. (See Code of Civ. Proc., §
437c(f)(2) [“A motion for summary adjudication shall only be granted if it completely disposes of a cause
of action.”].) San Diego also alleges Metropolitan breached the Exchange Agreement by unlawfully
including the Water Stewardship Rate in its adopted rates. (2014 FAC, § 44; 2016 SAC, { 44; 2018 SAC,
9 53-54.) Metropolitan states in a footnote that it paid San Diego “the full amount sought, rendering
those claims moot.” (Opening Brief, 10 fn. 10.) However, Metropolitan does not set forth any evidence
to support this assertion.

Accordingly, the Court finds Metropolitan is unable to burden shift as to San Diego’s fourth cause
of action for breach of contract. Metropolitan’s Motion is denied on this ground.

B. Declaratory Relief

Metropolitan moves for summary adjudication on its causes of action for declaratory relief’ on the
ground that “there is no triable issue of material fact that the price term of the Exchange Agreement does
not include or require a determination of ‘offsetting benefits’ under the Wheeling Statutes.” (Motion, 4.)
Metropolitan acknowledges that this “presents the same controversy discussed above with respect to [San
Diego’s] fourth cause of action for breach of contract.” (Opening Brief, 15.) Metropolitan seeks “a
judicial declaration that the Exchange Agreement is not a wheeling transaction and that the price term of
the Exchange Agreement neither incorporates nor is subject to the ‘fair compensation’ provisions of the
Wheeling Statutes or Resolution 8520.” (2014 XC, { 98; 2016 XC, { 98; 2018 XC, { 120.)

For the reasons discussed in section two, paragraph A above, the Court finds the Exchange
Agreement is subject to the Wheeling Statutes, including fair compensation. In addition, the Court notes
that Metropolitan did not include a copy of Resolution 8520 with its moving or reply briefs. Accordingly,
Metropolitan’s Motion is denied on this ground.

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7 Metropolitan seeks declaratory relief in the sixth cause of action in the 2014 and 2016 Cross-Complaints
and the eighth cause of action in the 2018 Cross-Complaint.
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In Re: San Diego County Water Authority CPF-14-514004
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I. Judicial Estoppel

Metropolitan moves for summary adjudication as to San Diego’s fourth cause of action for breach
of contract, Metropolitan’s fourteenth affirmative defense’, and Metropolitan’s causes of action for
judicial estoppel? on the ground “there is no triable issue of material fact on any element to establish [San
Diego] is estopped from claiming the price term of the Exchange Agreement incorporates or requires a
determination of ‘offsetting benefits’ under the Wheeling Statutes.” (Motion, 4-5.) In opposition, San
Diego argues Metropolitan’s judicial estoppel argument is barred by collateral estoppel and that San
Diego did not take two “‘totally inconsistent’ positions.” (Opposition, 19-20.)

“Judicial estoppel is an extraordinary remedy that should be applied with caution.” (Kelsey v.
Waste Management of Alameda County (1999) 76 Cal.App.4th 590, 598.) “Judicial estoppel prevents a
party from asserting a position in a legal proceeding that is contrary to a position previously taken in the
same or an earlier proceeding.” (Textron Inc. v. Travelers Casualty & Surety Co. (2020) 45 Cal.App.Sth
733, 754.) “Five factors determine whether judicial estoppel appl[ies}: (1) the same party has taken two
positions; (2) the positions were taken in judicial or quasi-judicial proceedings; (3) the party was
successful in asserting the first position (it was adopted by the tribunal); (4) the two positions are totally
inconsistent; and (5) the first position was not taken as the result of fraud ignorance, or mistake.” (Jd.)
“The fundamental basis of the doctrine is that the party to be estopped was successful in asserting a
position in a prior case that is totally inconsistent with its position in the current case.” (Id. at 754-755.)

Metropolitan relies on the testimony of Maureen Stapleton, San Diego’s General Manager, at a
public hearing on the Amended Joint Petition of the Imperial Irrigation District and San Diego for
Approval of a Long-Term Transfer of Conserved Water Pursuant to an Agreement Between IID and San
Diego, and Approval of Changes in Point of Diversion, Place of Use and Purpose of Use Under Permit
No. 7643 before the State Water Resources Control Board. (SUMF 25, 28.) Ms. Stapleton testified that
the Exchange Agreement “4s radically different than a wheeling agreement for a space available in that we

have a firm space in the aqueduct for the length of the exchange agreement. And it is set at a specific

8 Fourteenth affirmative defense in the 2014, 2016, and 2018 actions. (Motion, 4.)
° Metropolitan seeks declaratory relief in the seventh cause of action in the 2014 and 2016 Cross-
Complaints and the ninth cause of action in the 2018 Cross-Complaint.
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In Re: San Diego County Water Authority CPF-14-514004
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price based upon a negotiation between the two agencies.” (Id.) It is undisputed the parties preferred an
exchange agreement over a wheeling agreement. (SUMF 5.) However, in SDCWA I, the Court of Appeal
applied the Wheeling Statutes to Metropolitan’s water rates under the Exchange Agreement. (See
SDCWA I, 12 Cal.App.5th at 1144-1151.) Ms. Stapleton’s testimony does not support a position that the
Wheeling Statutes, including offsetting benefits, do not apply.

In addition, Metropolitan cites to the State Water Resources Control Board’s Order on the
Amended Joint Petition. (SUMF 29.) Specifically, paragraph one. (/d.) Neither paragraph one of the
order nor anywhere else in the order does the State Water Resources Control Board discuss San Diego’s
position or the Exchange Agreement. (See Metropolitan’s Evidence, Ex. I.)

Metropolitan also relies on Jn re Quantification Settlement Agreement Cases (2011) 201
Cal.App.4th 758, 838-839 as well as the related briefing. (SUMF 30-31.) Metropolitan and San Diego
“moved for summary adjudication of the cause of action for violation of the wheeling statutes. The trial
court granted summary adjudication in their favor, apparently, on two bases. First, the court concluded
that the County’s cause of action for violation of the wheeling statues was, in effect, a challenge to the
exchange agreement between Metropolitan and San Diego, which had already been validated by operation
of law and thus was not subject to a challenge. Second, the court concluded that the wheeling statutes
apply only to ‘refusals (in one form or another) to allow use of unused capacity.’” (Jd. at 838.) The Court
of Appeal affirmed. (/d. at 842.)

The related briefing addressed the issue of whether the County of Imperial and the Imperial
County Air Pollution Control District breached their duties under the Wheeling Statutes “by failing to
ensure that these agreements did not result in unreasonable environmental and economic impacts to the
County of Imperial. As such, the county and ICAPCD assert that QSA and related agreements are invalid
and must be side aside.” (Metropolitan Evidence, Ex. J, 1; see also id. at Ex, J, 14.) San Diego argued
“the agreements that are the subject of Case Nos. 1649 and 1656 .. . fall well outside the ambit of the
Wheeling Law.” (id at Ex. J, 1.) San Diego argued the Wheeling Law “is triggered only if and to the
extent the transaction at issue involves water that is sold by one party to a second party and then wheeled

to the buyer through a conveyance facility owned by a third party that is a public agency of this State.

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary AdjudicationoOo IN DH BF YW NY

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Thus, an agreement that does not involve the physical transfer of water from one party to another would
not be governed by the Wheeling Law. Similarly, an agreement that involves the physical transfer of
water, but that does not require actual use of a publicly-owned conveyance facility to effectuate that
transfer would not be subject to the Wheeling Law.” (Jd. at Ex. J, 4-15.) San Diego contended that the
Exchange Agreement was validated by operation of law, and therefore, not subject to a validity challenge.
(Id. at Ex. J, 19.) San Diego argued that even if the Exchange Agreement was subject to validation, the
“Wheeling Law does not apply where a bona fide transferor requests conveyance of water by a public
agency, and that agency voluntarily agrees to provide conveyance without regard to available capacity in
a particular conveyance facility and without insisting on asserting its rights under the Wheeling Law.”
(id. at Ex. J, 20.)

The trial court held San Diego and Metropolitan were “entitled to summary adjudication of the
challenged First Affirmative Defenses as a matter of law, because the County and ICAPCD cannot
challenge the [] Exchange Agreement in this proceeding” when the Exchange Agreement was validated
by operation of law. (Metropolitan Evidence, Ex. K, 5; see id. at Ex. K, 6-7 [applying the same reasoning
to the Third Affirmative Defense and First Cause of Action].) The trial court noted that “[t]he portion of
the Wheeling Statute challenged in the First Affirmative Defense addresses the effect of ‘[t]his use of a
water conveyance facility.’” (Jd. at Ex. K, 5; see id. at Ex. K, 6-7 {noting the same as to the Third
Affirmative Defense and First Cause of Action].)

On appeal, the parties argued the Wheeling Statues do not apply to the Exchange Agreement on
the grounds of validation as the Exchange Agreement was validated by operation of law and could not be
challenged using a Writ of Mandate for a Water Code section 1810 claim. (Metropolitan Evidence, Ex. L,
160-161.)

Metropolitan fails to burden shift. The evidence submitted by Metropolitan reveals that in the
QSA proceeding, San Diego took the position that the Wheeling Statutes did not apply when the parties
who initiated the proceeding were attempting to invalidate the Exchange Agreement under the Wheeling
Statutes. San Diego was not taking the same position as it is here. Namely, here, San Diego argues

Metropolitan breached the Exchange Agreement by including the Water Stewardship Rate and failing to

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In Re: San Diego County Water Authority CPF-14-514004
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“analyze or provide reasonable credit for the offsetting benefits generated by the Water Authority’s
acquisition and transportation of Non-Metropolitan Water.” (2014 FAC, {| 44; 2016 SAC, 4 44; 2018
SAC, {J 53-54.) San Diego’s position is not inconsistent. In the QSA proceeding, San Diego’s position
addressed invalidation of the Exchange Agreement. Here, San Diego’s position is that Metropolitan
breached the Exchange Agreement. Moreover, in SDCWA I, the Court of Appeal applied the Wheeling
Statutes to the Exchange Agreement. (See SDCWA I, 12 Cal.App.5th at 1144-1151.) Metropolitan does
not address SDCWA I as applied to its judicial estoppel argument.

Accordingly, Metropolitan’s Motion is denied on this ground.

TI. Conveyance Facility Owner

Metropolitan moves for summary adjudication as to “Metropolitan’s cause of action for
declaratory relief'° that, as the conveyance facility owner, Metropolitan determines any offsetting
benefits.” (Motion, 5.) Metropolitan argues “the Wheeling Statutes expressly empower the local public
agency owning the water conveyance facility to determine the fair compensation for a wheeling
transaction, including whether the owner receives offsetting benefits for the use of the system and, if
applicable, the reasonable credit for any offsetting benefits.” (Opening Brief, 18.) San Diego opposes on
the ground that Metropolitan’s argument is barred by judicial estoppel as it has been considered and
rejected by this Court. (Opposition, 22.) For the following reasons, the Court finds that Metropolitan, as
the conveyance facility owner, determines fair compensation, including a reasonable credit for any
offsetting benefits.

Metropolitan alleges an actual controversy exists between the parties because “if the Court were to
agree with San Diego that the offsetting benefits provision of the Wheeling Statues applies to the
Exchange Agreement, the Court cannot order Metropolitan to ‘calculate and apply’ a credit for ‘offsetting
benefits’ to San Diego.” (2014 XC, § 11; 2016 XC, J 11; 2018 XC, ¢ 133.) Metropolitan alleges “San
Diego seeks an improper remedy, it would be a violation of the separation of powers, and the Court is
without jurisdiction to determine the existence of offsetting benefits for the use of a conveyance system in

a particular transaction and, in situations where offsetting benefits do exist, the Court is without

10 Metropolitan seeks declaratory relief in the eighth cause of action in the 2014 and 2016 Cross-
Complaints and the tenth cause of action in the 2018 Cross-Complaint.
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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary AdjudicationCo em YN DH F BY

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jurisdiction to set the amount of a credit for offsetting benefits for a particular transaction.” (2014 XC, {
112; 2016 XC J 112; 2018 XC, ¢ 134.) Metropolitan seeks “a judicial declaration that as the local public
agency owning the water conveyance facility, it determine the fair compensation for a transaction,
including the existence of offsetting benefits for the use of the conveyance system and, if applicable, the
reasonable credit for any offsetting benefits.” (2014 XC, 4 115; 2016 XC, { 112; 2018 XC, 4 37.)

Code of Civil Procedure section 1060 confers standing upon “[a]ny person interested under a ...
contract” to bring an action for declaratory relief “in cases of actual controversy relating to the legal rights
and duties of the respective parties . . . including a determination of any question of construction or
validity arising under the . . . contract. The declaration may be had before there has been any breach of the
obligation in respect to which said declaration is sought.” (Code of Civ. Proc., § 1060.)

The Water Code provides that “[t]he state, regional, or local public agency owning the water
conveyance facility shall in a timely manner determine the following: (a) The amount and availability of
unused capacity. (b) The terms and conditions, including operation and maintenance requirements and
scheduling, quality requirements, terms or use, priorities, and fair compensation.” (Water Code, § 1812.)
“Fair Compensation’ means the reasonable charges incurred by the owner of the conveyance system,
including capital, operation, maintenance, and replacement costs, increased costs from any necessitated
purchase of supplemental power, and including reasonable credit for any offsetting benefits for the use of
the conveyance system.” (Water Code, § 1811(c).)

It is undisputed “Metropolitan delivers to the Water Authority from whatever source or sources
and using such facilities as determined by Metropolitan.” (SUMF 18.) It is also undisputed the express
language of the Exchange Agreement provides that “the Price shall be equal to the charge of charges set
by Metropolitan’s Board of Directors pursuant to applicable law and regulation and generally applicable
to the conveyance of water by Metropolitan on behalf of its member agencies.” (SUMF 21.)

Metropolitan relies on a single case, San Luis Coastal Unified School Dist. v. City of Morro Bay
(2000) 81 Cal.App.4th 1044 (“San Luis Coastal”). (Metropolitan Suppl. Brief, 4.) In San Luis Coastal,
the petitioner entered into a water supply agreement with the respondent wherein the respondent would
supply and deliver water to the respondent’s city limits. (Jd. at 1046.) The petitioner presented a water

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary Adjudicationwheeling proposal to the respondent. (Jd. at 1046-1047.) Under the proposal, the respondent would
wheel water directly to the petitioner’s schools located within city limits. (Jd. at 1046-1047.) However,
the respondent denied the proposal. (Id. at 1047.) The petitioner then filed a petition for writ of mandate
to compel the respondent to transport the petitioner’s water through the respondent’s facilities. (/d.) The
trial court denied the petition for writ of mandate. (/d.) The Court of Appeal reversed and directed the
trial court to order the respondent to determine matters set forth in Water Code § 1812 as the respondent
“did not determine the matters listed in section 1812 because it incorrectly assumed section 1810 did not
apply.” (/d. at 1051.) The court reasoned that Water Code “[s]ection 1810 potentially applies to the
[petitioner’s] demand for use of [the respondent’s] water conveyance facilities. Section 1812 requires,
however, that [the respondent] determine the amount and availability of its unused capacity and the terms
and conditions of its use, including operation and maintenance requirements, scheduling, quality
requirements, term, priorities and fair compensation.” (Jd.)

San Luis Coastal supports Metropolitan’s position. In San Luis Coastal, the Court of Appeal
directed the trial court to order the respondent to determine matters set forth in Water Code § 1812. (San
Luis Coastal, 81 Cal.App.4th at 1051.) “Matters” under Water Code § 1812 include fair compensation.
(Water Code, § 1812(b).) Furthermore, fair compensation includes a reasonable credit for any offsetting
benefits.

Moreover, the briefing indicates the parties do not dispute that the conveyance facility owner
determines fair compensation. San Diego acknowledges that “Metropolitan must set its charges under the
Exchange Agreement ‘in accordance with applicable law and regulation.’” (San Diego SUMF 18-19.)
Therefore, Metropolitan burden shifts to San Diego.

San Diego’s opposition is focused on determining contract damages. (Opposition, 21-22; San
Diego Suppl. Brief, 3-6.) San Diego relies on this Court’s Statement of Decision in the prior litigation
and SDCWA I. (Id.; See Jackson Decl., Ex. 2!!.) San Diego argues this Court previously rejected
Metropolitan’s argument that “this Court lacks jurisdiction to determine and award contract damages”

because Metropolitan “is tasked with determining rates, including ‘fair compensation’ for conveyance.”

1 Metropolitan’s objections to Exhibit 2 of the Jackson Declaration are overruled.
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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary Adjudication(Opposition, 22.) However, Metropolitan is not asking the Court to declare that this Court lacks
jurisdiction to award contract damages. Metropolitan seeks “a judicial declaration that as the local public
agency owning the water conveyance facility, it determines the fair compensation for a transaction,
including the existence of offsetting benefits for the use of the conveyance system and, if applicable, the
reasonable credit for any offsetting benefits.” (2014 XC, J 115; 2016 XC, { 112; 2018 XC, | 37.) The
key distinction is that determining offsetting benefits when setting rates is inherently different than
calculating contract damages. (See SDCWA I, 12 Cal.App.5th at 1145 [“It is not the court’s function to
set water rates, but only to determine if substantial evidence supports the fair compensation determination
by the water agency.”].)

In SDCWA I, this Court “found that Metropolitan had breached the price term of the 2003
exchange agreement because it charged [San Diego] transportation rates that were not ‘consistent with

on

law and regulation” and awarded “damages equal to the total amount [San Diego] paid under the
exchange agreement from 2011 to 2014 for State Water Project costs and the water stewardship rate.”
(SDCWA I, 12 Cal.App.Sth at 1141.) This “[C]ourt acknowledged that the award ‘may overcompensate’
[San Diego] by disallowing all State Water Project Costs but found that ‘[i]t asks too much of [San
Diego] to require it to recalculate Met[ropolitan]’s rates with any useful degree of precision.”” (Jd.) The
Court of Appeal affirmed in part and reversed in part on damages. (Jd. at 1154.) The Court of Appeal
concluded that since “Metropolitan’s system access rate was not improperly included in the wheeling
charges, there was no breach in that respect and damages should not have been calculated on that
erroneous premise. Since the water stewardship rate was unlawfully charged for the conveyance of water,
there was a breach of agreement in that respect. [San Diego] is entitled to recover damages limited to the
overcharges attributable to the unlawful inclusion of the water stewardship rate.” (/d.) The Court of
Appeal remanded “the matter for a redetermination of damages based solely on overcharges from
inclusion of the water stewardship rate.” (Jd.)

SDCWA Tis devoid of any discussion regarding a jurisdictional argument by Metropolitan.
Instead, the Court of Appeal rejected Metropolitan’s “assertions on appeal denying an enforceable
contract and actionable breach.” (SDCWA I, 12 Cal-App.5th at 1154.) As both this Court’s Statement of

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Decision and SDCWA J are not premised on contract damages arguments by Metropolitan, San Diego is
unable to raise a triable issue of material fact.

Accordingly, Metropolitan’s Motion is granted on this ground. Should San Diego prevail on its
breach of contract claim, the Court would not be stepping into the shoes of Metropolitan to determine fair
compensation. Instead, similar to SDCWA I, the Court would consider the damages estimate presented
and any mitigating factors. (See Civ. Code, § 3300 [“For the breach of an obligation arising from
contract, the measure of damages, except where otherwise expressly prohibited by [the Civil] Code, is the
amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or
which, in the ordinary course of things, would be likely to result therefrom.”].) The Court’s finding that
Metropolitan, as the conveyance facility owner, determines fair compensation, including a reasonable
credit for any offsetting benefits does not preclude San Diego from obtaining contract damages for breach
of contract here.

IV. Reformation

Metropolitan moves for summary adjudication as to “Metropolitan’s cause of action for
reformation’? of the Exchange Agreement price because there is no triable issue of material fact on any
element of reformation.” (Motion, 2.) Metropolitan argues it would not have agreed to the Price Term if
it had to comply with the fair compensation provision of the Wheeling Statutes or transferred canal lining
water rights. (Opening Brief, 18-19.) Metropolitan asserts it executed the Exchange Agreement under the
mistaken belief “that the Exchange Agreement was not a wheeling transaction and that its price term did
not require an offsetting benefits determination. As a result of that mistake, the price term does not truly
express the intention of the parties.” (Jd. at 19.) Metropolitan requests the Court reform the price term of
the Exchange Agreement as follows: “(1) expressly state that no offsetting benefits determination is
necessary or required; (2) state any offsetting benefits credit determined by the Court and subtract the
value of the canal lining water and the $235 million legislative appropriation; or (3) state that the canal
lining water is assigned back to Metropolitan and that [San Diego] will pay Metropolitan $235 million as

a return of the legislative appropriation in exchange for the offsetting benefits credit.” (Jd. at 20.) San

12 Ninth cause of action in the 2014 and 2016 Cross-Complaints and the eleventh cause of action in the
2018 Cross-Complaint.
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Diego opposes on the ground that the Exchange Agreement was validated by operation of law, the Court
rejected Mr. Kightliner’s testimony for lack of credibility, and this Court rejected Metropolitan’s attempt
to rescind the Exchange Agreement. (Opposition, 22-24.)

“Civil Code section 3699 provides the authority upon. which a contract may be reformed: ‘When,
through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time
knew or suspected, a written contract does not truly express the intention of the parties, it may be revised,
on the application of a party aggrieved, so as to express that intention, so far as it can be done without
prejudice to rights acquired by third persons, in good faith and for good value.’” (Jolley v. Chase Home
Finance, LLC (2013) 213 Cal.App.4th 872, 908, quoting Civil Code, § 3699.) “The ‘intention of the
parties,’ as stated in Civil Code section 3699, refers to a ‘single intention which is entertained by both
parties.” (Jolley, 213 Cal.App.4th at 908, quoting Shupe v. Nelson (1967) 254 Cal.App.2d 693, 700.)
““The essential purpose of reformation is to reflect the intent of the parties.” (Jolley, 213 Cal.App.4th at
908, quoting Jones v. First American Title Ins. Co. (2003) 107 Cal.App.4th 381, 389.)

The evidence submitted by Metropolitan demonstrates the parties were silent as to offsetting
benefits during contract negotiations. Metropolitan acknowledges as much. (See SUMF 15.) Therefore,
a triable issue of material fact remains as to whether the parties’ silence reflects the intention of the parties
to include or exclude offsetting benefits in the Exchange Agreement. In addition, there is a triable issue
of material fact as to whether San Diego knew or suspected any mistake.

Therefore, Metropolitan’s Motion is denied on this ground.

CONCLUSION AND ORDER

Accordingly, Metropolitan’s Motion is granted in part and denied in part. Metropolitan’s Motion

is granted as to the eighth cause of action in the 2014 and 2016 Cross-Complaints and the tenth cause of

action in the 2018 Cross-Complaint. The remainder of Metropolitan’s Motion is denied.

IT IS SO ORDERED.

Anne-Christine Massullo
Judge of the Superior Court

Dated: May 3, 2022

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In Re: San Diego County Water Authority CPF-14-514004
Order Granting in Part and Denying in Part Metropolitan’s Motion for Summary AdjudicationCERTIFICATE OF ELECTRONIC SERVICE
(CCP 1010.6(6) & CRC 2.260(g))

I, DANIAL LEMIRE, a Deputy Clerk of the Superior Court of the County of San

Francisco, certify that I am not a party to the within action.
; I electronically served THE ATTACHED DOCUMENT via

in .
. May 4 - 022 . . . .
File & ServeXpress on the recipients designated om the Transaction Receipt located on the File &

ServeXpress website.

Dated:
ated waved = 2022

1 Yuen, Clerk

DANIAL LEMIRE, Deputy Clerk