1 1 2 3 4 SOUTH CAROLINA, 5 Plaintiff, 6 vs. No. 138 7 NORTH CAROLINA, 8 Defendant. 9 10 11 12 _____________________________________________________ 13 14 TELEPHONIC CONFERENCE 15 BEFORE SPECIAL MASTER KRISTIN LINSLEY MYLES 16 Friday, January 9, 2009 17 18 19 20 21 Reported by: DANA M. FREED 22 CSR No. 10602 23 JOB No. 99244 24 25 2 1 2 3 4 SOUTH CAROLINA, 5 Plaintiff, 6 vs. No. 138 7 NORTH CAROLINA, 8 Defendant. 9 10 11 12 _____________________________________________________ 13 14 Telephonic Conference before Special 15 Master Kristin Linsley Myles, beginning at 11:06 a.m. 16 and ending at 11:52 a.m. on Friday, January 9, 2009, 17 before DANA M. FREED, Certified Shorthand Reporter 18 No. 10602. 19 20 21 22 23 24 25 3 1 APPEARANCES: 2 3 MUNGER, TOLLES & OLSON LLP KRISTIN LINSLEY MYLES, SPECIAL MASTER 4 AMY C. TOVAR 560 Mission Street, Twenty-Seventh Floor 5 San Francisco, California 94105-2907 415.512.4000 6 tovarac@mto.com 7 For SOUTH CAROLINA: 8 ASSISTANT DEPUTY ATTORNEY GENERAL 9 BY: ROBERT D. COOK L. CHILDS CANTEY 10 Post Office Box 11549 1000 Assembly Street, Room 519 11 Columbia, South Carolina 29211-1549 803.734.3736 12 agrcook@ag.state.sc.us 13 KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C. BY: DAVID C. FREDERICK 14 SCOTT ATTAWAY MICHAEL GOTTLIEB 15 Attorneys at Law 1615 M Street, N.W., Suite 400 16 Washington, D.C. 20036 202.326.7900 17 dfrederick@khhte.com 18 For NORTH CAROLINA: 19 NORTH CAROLINA DEPARTMENT OF JUSTICE 20 BY: JAMES C. GULICK CHRISTOPHER G. BROWNING 21 MARC D. BERNSTEIN Attorneys at Law 22 114 West Edenton Street Raleigh, North Carolina 27603 23 919.716.6900 cbrowning@ncdoj.gov 24 25 4 1 APPEARANCES: (Continued) 2 3 For PROPOSED INTERVENOR DUKE ENERGY CAROLINAS, LLC: 4 SIDLEY AUSTIN LLP BY: VIRGINIA A. SEITZ 5 Attorney at Law 1501 K Street, N.W. 6 Washington, D.C. 20005 202.736.8270 7 cphillips@sidley.com 8 For PROPOSED INTERVENOR CATAWBA RIVER WATER SUPPLY 9 PROJECT: 10 DRISCOLL SHEEDY, P.A. BY: JIM SHEEDY 11 SUSAN DRISCOLL Attorneys at Law 12 11520 North Community House Road Building 2, Suite 200 13 Charlotte, North Carolina 28277 jimsheedy@driscollsheedy.com 14 AKIN GUMP STRAUSS HAUER & FELD LLP 15 BY: TROY CAHILL Attorneys at Law 16 Robert S. Strauss Building 1333 New Hampshire Avenue, N.W. 17 Washington, DC 20036 tgoldstein@akingump.com 18 19 For the CITY OF CHARLOTTE: 20 HOGAN & HARTSON LLP BY: JAMES T. BANKS 21 Attorney at Law 555 Thirteenth Street, N.W. 22 Washington, D.C. 20004 202.637.5600 23 24 25 5 1 Friday, January 9, 2009 2 11:06 a.m. - 11:52 a.m. 3 MR. GULICK: Jim Gulick and Chris Browning 4 for North Carolina. 5 MR. SHEEDY: Jim Sheedy and Susan Driscoll. 6 MR. FREDERICK: David Frederick, Scott Attaway 7 and Mike Gottlieb here for South Carolina. 8 MR. CAHILL: Hi. Troy Cahill also on for 9 Catawba River Water Supply Project. 10 MR. COOK: Bob Cook and Childs Cantey for 11 South Carolina. 12 MS. SEITZ: Virginia Seitz for Duke Energy. 13 MR. BOYD: Mike Boyd, City of Charlotte. 14 MR. SHEEDY: This is Jim Sheedy for CRWSP. 15 I don't know if the court reporter picked it up. We 16 just joined the call. But Susan Driscoll and I are 17 here for CRWSP. 18 SPECIAL MASTER MYLES: I think we have 19 everybody. Is that right? 20 MR. BANKS: Jim Banks. 21 MR. GULICK: Special Master Myles, this is 22 Jim Gulick. Marc Bernstein has also joined for 23 North Carolina. 24 SPECIAL MASTER MYLES: So I think now we have 25 everybody. Okay. Why don't we go ahead then? I 6 1 received a call from the clerk's office -- I think the 2 parties did as well -- that the Court issued an order 3 after today's conference granting South Carolina's 4 motion for leave to file exceptions, filing the report 5 and then setting a schedule for the exceptions for 6 South Carolina and any other party or intervenor that 7 wishes to file exceptions. So for those I think who 8 were not contacted -- I think the intervenors were not 9 contacted -- the schedule that is set -- I haven't yet 10 seen the order, but I'm told it will be on the court's 11 website, is February 13th for exceptions by anybody 12 who wants to file them, replies due on March 9th, 13 surreplies due on March 23rd. 14 (Interruption in proceedings.) 15 SPECIAL MASTER MYLES: So that's what the 16 order says. I'm just going to proceed. 17 And on that schedule, I'm told that the, if 18 there is, that if all surreplies are in on time, that 19 it would go to a conference in early April probably, 20 first week in April. So that's the latest information 21 on scheduling. I don't know how that affects what our 22 mission is on today's call, which I expect will be 23 very short. I don't think we have much that we need 24 to do today. Especially in light of this schedule, 25 which will necessarily kick things out a little bit. 7 1 I think the main objective that I have, after 2 signing the case management conference, the case 3 management plan, is to get the next step in place 4 which is try to schedule, as we had done some time 5 ago, the trial date and other critical dates that we 6 need to move the case along. In addition to defining 7 the phases of the case. Is there a sense that the 8 latter, the attempt to meet and confer about phases 9 needs to wait until the Court decides intervention, or 10 is that something we could proceed on without having a 11 decision from the court? 12 MR. GULICK: Special Master Myles, this is 13 Jim Gulick for North Carolina. I don't think that, I 14 haven't discussed this with my co-counsel, but I don't 15 think that the question of phases really depends upon 16 the -- whether there should be phases and essentially 17 what they are is really dependent on the -- on the 18 intervention question. We did have some discussion 19 about -- about that at some length about all the 20 things that are involved with phases. 21 We in North Carolina remain strongly of the 22 view that bifurcation is desirable. And we believe 23 that the broad outlines of at least two phases are 24 fairly clear. There is some disagreement potentially 25 about all that's entailed to prove up issues in Phase 8 1 1. And -- and I think that we also share the view 2 that latter parts of that, that they may depend on, to 3 some degree, on development of the facts in order to 4 aid the Court in deciding some of those issues. 5 SPECIAL MASTER MYLES: Can you be more 6 specific about that point? 7 MR. GULICK: Yes. I think that if you look 8 back at the briefs that were filed by, for example, 9 South Carolina and North Carolina back in June, that 10 both start from the premise that the plaintiffs -- 11 South Carolina in this case -- has the burden of 12 proving that, that produces of water in North Carolina 13 are causing South Carolina harm that produces harms 14 and they have to be real and significant harms. And 15 the case law, as we understand it, is that the proof 16 has to be clear and convincing. 17 However, if you start looking at what it's 18 going to take to prove that, South Carolina has spent 19 some time in its brief, for example, discussing the 20 case of Colorado versus New Mexico. And in that case, 21 the river in question was called the Vermejo River and 22 the Court was very clear that the Vermejo River was 23 completely appropriated by the downstream users in 24 New Mexico. 25 Initially there was no use at all of the 9 1 river in Colorado. And when they said -- and it was 2 also noted in the facts that the river had some time, 3 that the water was in fact complete, sometimes 4 completely consumed by the uses in New Mexico. And in 5 light of that, the Court made a statement that under 6 those circumstances, any additional or new use in 7 Colorado would have an impact, adverse impact in 8 New Mexico. 9 SPECIAL MASTER MYLES: Is this the one that 10 Justice Marshall wrote? 11 MR. GULICK: I think so. There were two 12 decisions. There was a first one and then there was a 13 subsequent decision because it was remanded. And the 14 first -- the second one was written by O'Connor. And, 15 and the reason I am mentioning this is this is a good 16 example of a question where the applicability of that 17 decision in that case, that all you had to do was to 18 show that any increase in use in the upstream state 19 would necessarily cause harm in the downstream state, 20 in North Carolina's view, is highly dependent on the 21 facts of that case. And that higher volume of the 22 river was appropriated and used in the downstream 23 space. 24 We believe -- North Carolina believes that 25 that's not at all the circumstances of the river in 10 1 this case. But making a final decision about that 2 kind of legal principle from that case, and whether or 3 not it has any applicability to this case, is 4 something that depends on the facts that actually are 5 developed and presented in some sort of evidentiary 6 fashion. 7 And, and -- well, it appeared at least from 8 South Carolina's briefs, that South Carolina believes 9 that was applicable in this case. North Carolina 10 would strenuously disagree, but for the point of 11 the -- of this discussion that I'm making with you, 12 Special Master, today is simply that finally deciding 13 that kind of issue is going to depend on some factual 14 development. 15 So that's what I meant by -- by that. As far 16 as the major contours of phases are concerned, the 17 first is, as I think, pretty well set out in 18 South Carolina's brief from June at page 4, just to 19 the broad contours, and North Carolina's brief at page 20 3 and 4. These are the briefs that were filed last 21 June. 22 And I think that you'll see that the parties 23 are both agreeing in that a first phase, 24 South Carolina as the party seeking to prevent or in 25 join diversions by North Carolina, bears the burden of 11 1 proving by clear and convincing evidence that those 2 diversions by North Carolina have caused or will cause 3 South Carolina harm or damage of serious magnitude. 4 Now, what it takes to do that is I think an 5 area where the -- there is some disagreement among the 6 parties like the one I just described to you. A 7 second phase, perhaps final phase of the case, would 8 involve, if South Carolina prevailed in its initial 9 burden, would involve balancing the harms and the 10 benefits and the equities between the parties. 11 From North Carolina's perspective, balancing 12 harms and benefits or equities would not be an issue 13 of something involved in the first place. 14 MR. FREDERICK: Special Master Myles, if 15 Mr. Gulick has completed his -- 16 MR. GULICK: Yes, I have. 17 MR. FREDERICK: We -- I want to go back to 18 the question that you raised about the phases being 19 dependent on the intervention question. I think that 20 we basically agreed with North Carolina in the sense 21 that the issues are analytically distinct who gets to 22 be in the lawsuit is different from what the lawsuit 23 is about. 24 But as a practical matter, I don't think the 25 intervenors take the same view of what the phases 12 1 should be as what Mr. Gulick just outlined based on 2 the long meet-and-confer session that we had the other 3 day and which I would presume we would continue in the 4 meet and confer that we've scheduled for next week. 5 So, as a practical matter, it may well be 6 that by being parties in the lawsuit, the intervenors 7 would seek to alter what is needed to be proved in the 8 phases. With respect to the Colorado case, we agree 9 with North Carolina that understanding how to apply 10 the Court's standards for showing harm in causation 11 will depend on actual development. 12 But North Carolina does not seem to 13 acknowledge, is if the complaints directly alleges 14 that its interbasin transfer statute allows for 15 transfers out of the Catawba River basin respective -- 16 irrespective of what the river conditions are, and so 17 we believe that at periods of low flow, we can 18 establish a baseline for the river. 19 The mere fact that their state statute allows 20 for upstream North Carolina users of the river to take 21 water out of the river in amounts that are far in 22 excess of what the river's capacity is, would 23 necessarily prove causation for harm and that we would 24 not have to go through all of the elaborate showings 25 of harm and causation that North Carolina and the 13 1 intervenors seem to think that we are required to for 2 South Carolina. 3 Now, that's not to say that we do not intend 4 also to show those harms. But we think that a proper 5 hydrological understanding of the river is going to 6 establish that in periods of low flow, the river 7 simply cannot sustain the tens of millions of gallons 8 of withdrawals that are authorized under North 9 Carolina's interbasin transfer statute. And that 10 statute does not take into account the effects on 11 South Carolina of upstream withdrawals. And that is 12 really crucial to understanding how the harm would be 13 explained add proved in a Phase 1 of the case and also 14 necessarily establish the precursor for an equitable 15 apportionment and what each state would be permitted 16 to withdraw from the river under its applicable 17 statutes. 18 SPECIAL MASTER MYLES: But even under that 19 analysis, wouldn't you have to take into account 20 actual withdraws? You couldn't rest your case solely 21 on authorized withdrawals, could you? 22 MR. FREDERICK: Well, yes, we would have to 23 take into account actual withdrawals, but we would 24 also be entitled to an injunction against a state 25 statute like North Carolina's that authorized 14 1 withdrawals without a permit that would be taken out 2 of the river before any harm to South Carolina would 3 be taken into account. 4 So to give you an example, if the river is 5 able to sustain withdrawals at the level of, say, 10 6 million gallons per day, but the North Carolina 7 statutes and permits authorize withdrawals of up to 8 80 million gallons per day, if you were to determine 9 that the -- that in a period of low flow, the most 10 that could be taken out of the Catawba River would be 11 12 million gallons per day, we would be entitled to an 12 injunction against North Carolina saying, even though 13 your state statute has authorized 80 million gallons 14 per day, you are not allowed to use that statute 15 because to do so would harm South Carolina for any 16 withdrawal above the 12 million gallons per day. 17 SPECIAL MASTER MYLES: But the injunction -- 18 entitlement to in junction is something that's not 19 really encompassed within Phase 1, is it? 20 MR. FREDERICK: Well, it goes to -- 21 SPECIAL MASTER MYLES: Besides, entitlement 22 to an injunction is really not the issue, because an 23 injunction would depend upon a showing of irreparable 24 harm and other showings that it isn't clear that a 25 decree in the case apportioning the water wouldn't be 15 1 sufficient. I'm not sure that one could presuppose 2 there would be an entitlement to an injunction. 3 But even apart from that, though, I don't see 4 how that could -- are you suggesting that entitlement 5 to an injunction is part of phase 1? 6 MR. FREDERICK: No, what I'm saying is that 7 to understand what the river's capacity is, it is 8 important to understand the conditions of the river in 9 different drought and nondrought periods. And that 10 when the river is in a drought position, even -- all 11 of the analyses show, you know, kind of what the 12 withdrawal capacity of the river is in those periods 13 of low flow. And the withdrawals that are authorized 14 under North Carolina statute do not take into account 15 the effects on South Carolina of additional 16 withdrawals. 17 SPECIAL MASTER MYLES: Yeah, I understand 18 that. But I don't think that what you're saying is 19 inconsistent with what Mr. Gulick said. I don't -- I 20 don't think that -- I do think that the more important 21 issue for Phase 1 is probably going to be what is 22 actually being withdrawn than what is authorized to be 23 withdrawn. 24 MR. FREDERICK: Well, we would -- we would 25 disagree with that, Special Master. And our proofs 16 1 are going to be dedicated not only to actual 2 withdrawals but also to authorized withdrawals, 3 because the best way of understanding harm is looking 4 at the entire circumstances of the river as they are 5 and as they are projected to be into the future. 6 SPECIAL MASTER MYLES: Okay. Well, I didn't 7 mean to cut you off. Did you have more to add? 8 MR. FREDERICK: Well, I think that the point 9 that Mr. Gulick glossed over a little bit, and where 10 we spent most of the time in the meet and confer 11 earlier this week was on the question of causation. 12 And the problem that we've had in identifying 13 discernible phases in the case is that the intervenors 14 have expressed the view that some of the factors that 15 go into causation are factors that South Carolina 16 thinks are more properly understood as Phase 2 17 equitable apportionment factors. 18 Let me give you an illustration of that. The 19 example was given that if South Carolina had not 20 adequately conserved water in a period of drought, it 21 was a causative agent of harms for lack of water in 22 South Carolina. 23 And the court's cases we think are quite 24 clear that in determining an equitable apportionment, 25 the factors -- one of the factors that the Court looks 17 1 at is have both states engaged in conservation and 2 what have the effects of that been. But if you treat 3 that as a causation element, it would go in Phase 1, 4 whereas our reading of the cases would cause it to be 5 understood as a Phase 2 factor. 6 And coming to an agreement on how we would 7 treat an issue like that is something that we were not 8 able to do the other day when we met and conferred 9 and, you know, we've agreed to go back and look at 10 each other's papers. I don't think anybody expected 11 that we would have a long discussion about this on the 12 call today. But -- but I wanted to explain to you 13 where the -- where we understood the source of 14 disagreement to be. 15 MR. BANKS: Special Master Myles, this is 16 Jim Banks for Charlotte. I wonder if I might address 17 that point. 18 SPECIAL MASTER MYLES: Of course. 19 MR. BANKS: I think Mr. Frederick's referring 20 to comments I made in the meet and confer. And I 21 think he's confused about what I was trying to say 22 there. Water conservation takes many forms and there, 23 of course, are considerations of conservation in 24 North Carolina and also in South Carolina. And in 25 Phase 2, as the court's cases demonstrate, there is a 18 1 weighing or a comparison of the conservation practices 2 of the upstream and downstream states as the equities 3 are balanced. 4 But that's not to say that water conservation 5 and the facts surrounding water conservation wouldn't 6 be relevant to Phase 1 causation questions. And 7 here's an example. And this illustrates, I think, 8 with a hypothetical, why it's so difficult to -- to 9 address these issues in a hypothetical fashion without 10 the facts. But assume there's a water user, say a 11 municipality, in South Carolina that is, through 12 wasteful practices or lack of water conservation, 13 consuming a lot of water in low-flow periods that's 14 not returned to the river. And assume further that 15 the harm that South Carolina attempts to demonstrate 16 is being experienced downstream of that point by 17 another user in South Carolina. 18 Our point is that it is relevant in Phase 1 19 for Charlotte to assert, for example, that the 20 wasteful practices of the South Carolina entity 21 upstream are contributing to the harms being 22 experienced by the South Carolina entity downstream. 23 And that you can't simply assume that whatever 24 withdrawals and returns are being practiced in 25 South Carolina by that upstream entity are -- are a 19 1 given because it's fair to examine whether they are, 2 in fact, harming their sister city downstream through 3 those wasteful practices. 4 It's a question of who caused the harm. And 5 it's not at all related to the comparison of 6 conservation practices between North Carolina and 7 South Carolina that would later be undertaken in Phase 8 2, should we get that far. 9 MR. FREDERICK: If I could respond to that. 10 The answer is readily apparent, which is that if there 11 is more water coming down from North Carolina, there 12 will be plenty of water regardless of what the 13 particular conservation practices are of a 14 South Carolina community. And that you look at this 15 as state versus state and not looking at the -- 16 you know, intermural practice of subdivisions of 17 the states or particular water users of the state. 18 What we're seeking to do here fundamentally 19 is to have the North Carolina interbasin transfer 20 statute invalidated because it doesn't take into 21 account the facts and circumstances of South Carolina 22 when it authorizes withdrawals of the river out of the 23 Catawba River basin that are never returned to the 24 Catawba River basin. 25 MR. BANKS: Well, the same -- this is Jim 20 1 Banks. 2 The same is true for South Carolina practices 3 that cause water not to be returned to the river. 4 It's -- it seems to me just obvious that if the facts 5 show that kind of practice, it may well be that -- 6 that uses in North Carolina, if not curtailed, 7 wouldn't make any difference at all, any measurable 8 difference at all to that farther downstream entity in 9 South Carolina, because of those wasteful practices up 10 river, but still within South Carolina. 11 MR. GULICK: Special Master Myles, this is 12 Jim Gulick. 13 Very briefly. Another example has to do with 14 water quality issues. For example -- which could be 15 affected by volume. But water quality can also be 16 affected, of course, by -- by emissions of nutrients 17 and others into the water. I believe South Carolina 18 alleged in its complaint specifically that there were 19 water quality problems occurring in the Lake Wateree 20 which is the reservoir furthest south in the Duke 21 system. I'm sorry, get a little closer to the mic. 22 And it certainly could be that reduced water 23 flow is a part of that problem. But the problem could 24 also be caused by, in whole or in part, emissions of 25 nutrients in South Carolina at or near or above Lake 21 1 Wateree. And those are causation issues. And so 2 those are -- those are the kinds of complexities 3 related to causation which -- which may eventually 4 come to the fore. But they all do depend on -- on 5 factual development. 6 And I did also want very briefly to talk 7 about North Carolina's act. We agree with the Special 8 Master -- this is Jim Gulick again. 9 We agree with Special Master Myles that 10 questions of injunction and deciding ultimately about 11 the harm of the act would be a question for at the end 12 of the case. I do want to say, first of all, that the 13 act about which South Carolina filed its complaint was 14 subsequently amended. So that act is no longer the 15 law of North Carolina. There were some significant 16 changes. 17 North Carolina would not take the position 18 and will not take the position in this litigation that 19 it can authorize takings that would exceed its fair 20 share the its use of the river. It strongly disputes 21 that, however, the implication that -- that there is a 22 necessary result that it does cause that harm and we 23 believe it's very much the case that South Carolina 24 has to prove that the diversions that have actually 25 been authorized or that imminently will be authorized 22 1 and occurring and are actually causing that harm. Not 2 that they theoretically could. 3 SPECIAL MASTER MYLES: Okay. Is that all you 4 had, Mr. Gulick? Pardon me? 5 MR. GULICK: Yes, that was all I was going to 6 say right there. 7 SPECIAL MASTER MYLES: Okay. Just a moment. 8 I have one question for you, Mr. Gulick. And 9 that is you said a couple of times that issues depend 10 on factual development. Specifically, I think you 11 said the issue of emissions and you said the issue of 12 conservation, I believe, that depends on -- 13 MR. GULICK: Mr. Banks had mentioned the 14 conservation. 15 SPECIAL MASTER MYLES: Yeah, he mentioned the 16 conservation. You mentioned something else. 17 MR. BANKS: I think it has to do with the 18 extent to which those things are relevant to causation 19 of the harms that South Carolina actually discloses. 20 SPECIAL MASTER MYLES: Right. He 21 mentioned -- Mr. Banks mentioned conservation. What 22 you had mentioned before was the issue of Colorado 23 versus New Mexico and the complete -- the issue of 24 whether the river's completely appropriated, whether 25 the analysis of Colorado versus New Mexico applies in 23 1 a case like that. 2 MR. BANKS: That particular one, yes. 3 SPECIAL MASTER MYLES: Yeah. My only 4 question was what you meant by subject to factual 5 development or depending on factual development. What 6 I'm sort of trying to get at here is when we can 7 attempt -- when, if at all, we can attempt to define 8 the phases of this case in a way that's definitive so 9 we know -- so everybody knows. 10 It seems to me that it's -- and I'm just 11 floating this out there, that -- and I think I 12 mentioned this last time we talked. That we've had 13 this -- some of these disputes have been lingering in 14 the arguments since the beginning of the case. 15 It seems to me that resolution of some of 16 these issues, definitional issues if you will or a 17 burden of proof issues, should not await the actual 18 decision in the case because if there's going to be a 19 great deal of uncertainty then between now and the 20 final report on what the answers to these questions 21 are. 22 It seems to me they lend themselves to 23 interim resolution. Whether we can define the issues 24 cleanly in a way that sort of question-presented 25 format where we can attempt to achieve a decision on 24 1 some of these issues. That's a question. And when 2 you say things depend on factual development, what I 3 was getting at is whether you mean that those legal 4 issues cannot be resolved until after there's been 5 more discovery, or are those -- or did you just mean 6 those are Phase 1 issues? That's what I was sort of 7 asking. 8 MR. GULICK: What I meant, Special Master 9 Myles, this is Jim Gulick, is I think the broad 10 statement of the issue in Phase 1, I think the 11 parties, I think -- my view, based on the briefs with 12 South Carolina and North Carolina, were not too far 13 apart. Where we diverge is if South Carolina has -- 14 South Carolina has the initial burden of proof, that 15 it is being harmed by North Carolina. 16 What it's going to take to prove that is 17 where there appears to be divergence of views. That 18 may not be the overall main issue, because I don't 19 think that's -- I think that's better defined. It's, 20 what is it going to take to carry that burden of 21 proof? And what is the evidence that's relevant to 22 that. Those are the things where there seems to be 23 some dispute about it. 24 And it's in that second realm, it seems to 25 me, that the facts become more -- become more to the 25 1 forefront. I hope that that was clear. 2 SPECIAL MASTER MYLES: I think so. 3 MR. GULICK: And of course we -- I think all 4 the parties -- and it was all the parties and I 5 include the intervenors who participated in the 6 conference call earlier this week, felt that it was a 7 productive discussion and that we did advance an 8 understanding of the respective positions and that's 9 why we scheduled a conference call for next week to 10 follow up on that discussion. In particular, with 11 respect to this discussion of the phases and what -- 12 what's entailed in the proofs of those things. 13 SPECIAL MASTER MYLES: Okay. 14 MR. GULICK: In my opinion, we're not as far 15 apart about what the phases are. And we can bring 16 that closer together with some further discussion. 17 Setting aside exactly what it's going to take to 18 prevail or, you know, on those issues. 19 SPECIAL MASTER MYLES: Okay. 20 MR. GULICK: If that makes sense to you. 21 SPECIAL MASTER MYLES: Yes, that makes 22 perfect sense. And I do think it's productive to go 23 forward. I feel -- I believe that it is not -- I 24 agree with those who said, I think including yourself, 25 that the -- that this phase -- attempting to define 26 1 the phases more clearly is not something that really 2 depends upon the outcome of the intervention motions. 3 For a couple reasons. One, that the parties 4 should be the primary -- that the state parties should 5 be the primary drivers of the definition of the 6 phases, I would think, because they have more issues 7 at stake. You know, the intervenors have their issues 8 but the parties have encompassed all the issues. 9 And further, whatever the outcome of the 10 intervention motions, I don't think it hurts to have 11 views from the intervenors in the interim on the 12 assumption that either of their views will be relevant 13 for now or that even if they don't remain intervenors, 14 they may well be amici, so no matter what the outcome, 15 I think it's productive to proceed. I don't think it 16 makes sense to delay all phases of the case or all 17 aspects of the case pending the outcome of that. 18 Even though it's only a few more months, I 19 don't see the point. We've had a year already of, 20 you know, of -- the case has been on file for well 21 over a year now. So I think it's just time to move 22 along with it. And if the parties can have a further 23 productive discussion with everyone participating on 24 what the phases are, I think that's the best next 25 step. But also are there issues that ought to be 27 1 addressed and resolved along the way that would 2 benefit from briefing and/or decision, such as burden 3 of proof? 4 I know South Carolina has expressed a view 5 along the way that that's an issue that out to await 6 the end of the case. I don't know if I agree with 7 that. But that's something that we can at least 8 consider, that we ought to -- to the extent there are 9 issues that are preventing the parties from defining 10 and/or working within the definitions of the phases, 11 those can be identified and resolved if they can't be 12 resolved in the meet and confer. 13 MR. FREDERICK: Special Master Myles, this is 14 David Frederick for South Carolina. May I propose the 15 suggestion that before the parties and the intervenors 16 have their meet and confer next week, that we 17 individually try to put pen to paper on articulating 18 what the issues are as we see them in a Phase 1 and in 19 a Phase 2? 20 And it may very well be that, as Mr. Gulick 21 says, South Carolina and North Carolina agree with, 22 you know, the articulation of 2 or 3 or 4 of the 23 issues that would need to be resolved in 24 Phase 1. But that we disagree whether an issue is 25 properly understood as a Phase 1 or a Phase 2 issue. 28 1 But that we then are in a position to tee up for you a 2 decision on whether a particular matter is going to be 3 decided as part of Phase 1 or part of Phase 2. 4 We appreciate your interest in moving the 5 case along and that might be a way to help crystallize 6 the areas of disagreement while stating the issues at 7 a high enough level of abstraction that we are not 8 foreclosing the possibility of factual development 9 that would help refine them further down the road. 10 SPECIAL MASTER MYLES: Uh-huh. What do 11 people think about that proposal? 12 MR. BANKS: Special Master Myles, this is Jim 13 Banks for Charlotte. I have to just frankly disagree 14 with that. I think the difficulty with doing what 15 Mr. Frederick suggests is that there are almost an 16 endless number of potential issues, such as he 17 proposes to brief in the abstract. And only 18 South Carolina knows which of those issues will become 19 relevant because only South Carolina knows what its 20 case is. 21 We haven't been told what the harms are or 22 what the causes are. And until we do, we don't know 23 how our attacks on those assertions would be framed in 24 terms of legal issues and the court's precedence. I 25 think all of that has to wait until South Carolina 29 1 finally tells us what its case is. 2 MR. FREDERICK: Well, this is David 3 Frederick. I thought we had been talking about what 4 the case is, which is that the river is 5 overappropriated and North Carolina's IBT statute 6 authorizes more appropriations that the river can't 7 sustain and handle. 8 MR. BANKS: That is exactly the point. This 9 is Jim Banks. That is South Carolina's view of how it 10 would like the case to be perceived, but it has yet to 11 offer any proof that that's the situation in this 12 river. 13 SPECIAL MASTER MYLES: But that would be the 14 subject of Phase 1. 15 MR. BANKS: Exactly. And until we see what 16 South Carolina attempts to prove in Phase 1, I don't 17 know how we can identify and decide issues of law that 18 might or might not apply. 19 MR. GULICK: Special Master Myles, this is 20 Jim Gulick again. Today Mr. Frederick has spoken 21 quite a lot about North Carolina's interbasin 22 transfers and interbasin transfer statute, which 23 of course are mentioned in the complaint. 24 We have understood that South Carolina -- 25 that is not all that South Carolina is complaining 30 1 about in the uses in the river based on matters that, 2 of course, you're well aware of, Special Master. But 3 I think it's -- it's a very important element for 4 North Carolina is to know not only what are the harms 5 other than those five or so that it mentioned as 6 specific occurrences that occurred in 2002, what are 7 the harms that it says North Carolina is actually 8 causing, and what are all of the uses or exactly how 9 did they define what North Carolina's overconsumption 10 is? Because we are -- if it's not just the interbasin 11 transfers they referred to, we don't know what they 12 knew. 13 And that's something we need from them, and I 14 know I've talked about this before, for them to tell 15 us so that we can properly complete our discovery and 16 -- just on Phase 1. So those are -- those are 17 significant elements there. 18 SPECIAL MASTER MYLES: Well, we had 19 originally set a briefing schedule and discovery 20 schedule way back when. I want to say it was in -- in 21 July when we talked about setting a schedule for 22 South Carolina to identify specifically the harms it 23 was claiming and the uses that were causing those 24 harms. That was all part of our effort to come up 25 with a case management schedule. And I think it also 31 1 came up in connection with North Carolina's motion 2 over the scope of the complaints, the need for 3 North Carolina to know what it was responding to. 4 And I believe I said that was right. That 5 North Carolina did have the right to know and we were 6 trying to set up a schedule to address that. I still 7 think that's advisable. I think what happened is the 8 schedule we put in place, or tried to put in place, 9 got sidetracked and removed from the case management 10 discussions because of the pendency of the 11 intervention challenge. 12 But that still should be something we're 13 trying to define and it may be incumbent upon 14 North Carolina to rejuvenate that discussion over a 15 schedule for disclosure, essentially, by 16 South Carolina, to make that an issue that we need to 17 resolve and put in place and have a time, a schedule 18 for. 19 MR. FREDERICK: This is David Frederick. 20 I would like to just point out that we did make a very 21 important disclosure, as we had pledged to do before 22 Thanksgiving, which was to say that the harms would be 23 north of the conjunction of the Wateree and the 24 Congaree Rivers and that that was -- that took an 25 enormous amount of work on South Carolina's part to 32 1 narrow the scope of the harms that we would be 2 asserting. And we heard not a single word from either 3 North Carolina or any of the intervenors after making 4 that disclosure. And that was a tremendous amount of 5 work on South Carolina's part to be responsive to the 6 chronic complaining on their part about how we have 7 supposedly failed to identify the harms to -- to 8 South Carolina from the overconsumption of a river 9 that has been identified as one of the most endangered 10 rivers in the United States. 11 SPECIAL MASTER MYLES: Yeah, I do recall that 12 disclosure. That was useful and that was part of the 13 process of moving forward the procedures for 14 defining -- further defining the issues as perceived 15 by South Carolina. I think more needs to be done. 16 That was a geographic limitation. 17 I think what North Carolina has asked for in 18 addition, and I believe we discussed my view that it 19 was warranted, would be a more functional definition 20 of the harms, what particular uses are being 21 complained of, what particular harms are being 22 experienced. 23 The geographical limitation was something we 24 had discussed somewhat separately of that. But we 25 still need to -- we still need to have disclosures on 33 1 the more generalized harms that South Carolina's 2 complaining about. 3 MR. FREDERICK: And Special Master Myles, we 4 do appreciate that. And -- but I do want to, 5 you know, make clear that even though this case was 6 accepted by the Supreme Court a year ago and we have 7 devoted an enormous number of hours to the factual 8 development, documents are only now, you know, coming 9 in that have been subject to review. Many documents 10 have not even be produced yet. And we are -- 11 you know, we have devoted enormous numbers of 12 resources. 13 But a river is a very complex system and it 14 varies from year to year, depending on rain and other 15 conditions that affect it. And it is because of the 16 complexity of it and the number of urban areas that 17 are reliant on it, it is not an easy task simply to 18 say, you know, the patient died because the ambulance 19 didn't get to the hospital in time. I mean, the case 20 is significantly more complex than that. 21 And we have made a number of concessions that 22 make the case different than the normal case where the 23 defendant would simply await the presentation of the 24 proofs at trial and North Carolina has every 25 opportunity to take depositions and to do document 34 1 production and review of our documents. And I just 2 think that at some point it's a -- it's a broken 3 record that keeps repeating itself. 4 SPECIAL MASTER MYLES: But I don't agree with 5 that, Mr. Frederick. I don't agree with two parts of 6 that. Number 1, having reviewed numerous cases going 7 back to the beginning of the court's original 8 jurisdiction, jurisprudence over rivers, there tended 9 to be very detailed pleadings in the past, and even in 10 more recent cases, that didn't create a kind of notice 11 pleading wait until proof at trial scenario for the 12 defending party. 13 There was not as much detail in South 14 Carolina's complaint, particularly since the 15 complaints focused largely on transfers that 16 South Carolina made clear in its subsequent briefing 17 that it felt that the complaint went beyond transfers. 18 And therefore, there is a dearth of information that 19 would ordinarily be provided about what South 20 Carolina's complaining about. 21 And I don't think it has been a broken 22 record. I think -- I've said several times in 23 conferences over the course of the case that I agreed 24 with North Carolina, that there was a problem there 25 that needed to be contended with. In part, because as 35 1 you say, it is a complex process, trying to evaluate 2 an entire river system. 3 And therefore, it's incumbent upon the 4 plaintiff in the case to do what's necessary to define 5 the issues. The plaintiff is going to be the primary 6 party that needs to do that. And I think in most 7 cases, the original and otherwise, there are 8 mechanisms to force the plaintiff to do that including 9 contention interrogatories, similar mechanisms, 10 motions for more particular pleadings. 11 And there are all sorts of mechanisms that 12 are specifically designed to get the plaintiff to -- 13 to give more specificity on what the plaintiff claims 14 has been done that's wrong or needs to be remedied. 15 So that being said, I just think we need to 16 get that process back into place. Whatever it was. 17 And it may -- so I think that sort of the agenda items 18 I'm seeing going forward are to create a schedule for, 19 or to rejuvenate the discussion we had previously 20 about a schedule for specific disclosures by 21 South Carolina, taking into account those that have 22 already been made. But what additional disclosures 23 should be made in terms of identifying the specific 24 harms and identifying the specific uses that 25 South Carolina claims caused those harms. That's one 36 1 thing. 2 And we just need to create a schedule for 3 when that's going to happen. And build it into the 4 overall case schedule discussion that we need to have, 5 which is what we had done before, but it just got 6 sidetracked. 7 Secondly, it's just defining the phases, 8 which it sounds like the parties are well along toward 9 doing. I think there needs to be input from the 10 intervenors on that. By the time we get around to 11 deciding that issue, there'll probably be a decision 12 on the intervention anyway, so we'll have greater 13 clarity but nothing prevents us, I think, from going 14 forward with that process and keeping the intervenors 15 in the loop on that. 16 And then third identifying, as I mentioned, 17 any legal issues that would benefit from resolution in 18 the context of this attempt to define phases and/or to 19 define harms in the uses. 20 Now, that's what I think ought to happen in 21 the next sort of -- in the next month. We ought to 22 try to move toward that for the next conference. Are 23 there other things that I've missed? 24 Okay, well, if not, what's the best way to 25 makes these things happen? Would it be to have -- 37 1 obviously, your meet and confer is on the 12th; is 2 that right? 3 MR. FREDERICK: Sorry. On the 14th. 4 SPECIAL MASTER MYLES: On the 14th, okay. 5 Maybe what would be possible is for the parties to 6 include in their meet and confer this issue of 7 scheduling of disclosures, which I'll add also, if 8 I recall correctly, was somewhat bound up in the 9 schedule for expert disclosures. I think the two 10 issues were -- I know we discussed them together. 11 I didn't review that transcript but I know that we 12 discussed those two issues together. And then 13 continued discussions about defining the phases. 14 Does it just make sense for the parties to 15 give reports on the outcome of that? 16 MR. GULICK: Yes, I think that makes sense, 17 Special Master Myles. This is Jim Gulick. 18 MR. FREDERICK: Just to be clear, a report on 19 the meet and confer from -- I'm just -- I'm just not 20 clear on what we're reporting and when. 21 SPECIAL MASTER MYLES: Well, I don't need a 22 report on the back and forth that goes on in the meet 23 and confer. What I just need is the parties either 24 agreed upon or separate recommendations for a schedule 25 for some sort of, first of all, on the definition of 38 1 the phases, which I think everyone agrees we can move 2 forward with, try to refine. And that may be that we 3 need to just have either joint or separate submissions 4 on that so we can decide it. I'm not really wanting 5 just an update from the parties on day-to-day 6 activities. But I just want to tee that up, tee that 7 up for decision on what the phases will look like, so 8 we can get the second case management order in place. 9 Toward the same end, again, the schedule for 10 disclosure of the issues we talked about. And 11 ultimately, we'll need to get any other scheduling 12 issues that would go in the second case management 13 order in place. Deadlines for fact discovery, expert 14 discovery, et cetera. 15 MR. BANKS: Special Master Myles, this is 16 Jim Banks. I'm just wondering whether you're 17 anticipating alternate schedules with contingencies 18 based on which of the intervenors might be allowed in 19 the case and which would not and when that might 20 happen. 21 SPECIAL MASTER MYLES: I think that the 22 resolution of the ultimate trial schedule is probably 23 going to take place after the Court rules on 24 intervention, I would suspect. I just want to get the 25 ball rolling, so.... So if we want to have 39 1 alternative -- consider alternative schedules, I just 2 -- I don't want to bog the parties down into too much 3 hypothetical thinking on scheduling. 4 I think that the issue of disclosure by 5 South Carolina of the harms and uses that it is 6 complaining about frankly doesn't really need to await 7 resolution of the intervention issues. To me, that 8 issue is important, it's been around for a long time, 9 and it seems like it's something that can be resolved 10 independently of the intervention issues. I do think 11 there's a need more globally to get a schedule in 12 place as soon as possible, a complete discovery 13 schedule. 14 To the extent that turns on the intervention, 15 I don't think there's a need necessarily to resolve 16 that issue immediately. I just want parties to start 17 moving in that direction. Does that make sense? I 18 hope I'm being clear. 19 MR. GULICK: Special Master Myles, this is 20 Jim Gulick. I think you are. I would, with regard to 21 the actually setting, general setting of deadlines for 22 this -- for the schedule dates, I think that's going 23 to be very hard to do until we, based on all the 24 discussions that we've had, until the Court resolved 25 the intervention issue. Because actually setting up 40 1 a lot of different hypothetical contingencies will 2 take a lot of time. And -- 3 SPECIAL MASTER MYLES: Because of the need 4 for catch-up discovery and the like? 5 MR. GULICK: All that kind of thing. There 6 are several productive things it seems we can be 7 working on. You've identified some of them. But 8 trying to nail down -- this will be a deadline if 9 intervenors are allowed in and this if they're not. 10 That's just going to be very cumbersome for us to do. 11 SPECIAL MASTER MYLES: Okay. Well, why don't 12 we do this? Why don't we have an attempt by the 13 parties to develop a schedule for the disclosures we 14 talked about? However, whatever mechanism you all 15 want to proceed with for that. In other words, you 16 could do it in the form of interrogatories which is 17 what I think we talked about before. There's other 18 mechanisms available like particularized pleadings, 19 but that may be too formalistic. It may be better to 20 do it through discovery devices. 21 And then defining the phases. And then what 22 may be -- picking up on your suggestion, why don't we 23 have the parties look at any other concrete processes 24 that can be set in motion that would not be dependent 25 on the outcome of the intervention motions, if there's 41 1 anything else that needs to be in there such as legal 2 issues but also anything else. 3 MR. FREDERICK: Special Master Myles, this is 4 David Frederick. We would also endeavor to work with 5 North Carolina to develop a trial schedule for Phase 1 6 assuming that the intervenors are excluded from the 7 suit. And then if the Court rules otherwise, then to 8 renew that issue upon the Court's ruling. But in the 9 interest of advancing the case and getting it moving 10 along, we think that there's merit to having that 11 trial schedule in place. 12 MR. BROWNING: Your Honor, this is Chris 13 Browning. I think we've had this conversation many 14 months ago. And North Carolina's consistent position 15 has been that South Carolina chose to tee up this 16 issue before the U.S. Supreme Court and to sidetrack 17 us all with regard to challenging the Court, the 18 Special Master's order regarding intervention. And at 19 this point, it just seems premature to be setting 20 specific schedules such as a trial schedule, while 21 we're in limbo in this interim period, particularly 22 given the fact that that interim period apparently 23 will be over fairly shortly. 24 MR. FREDERICK: Well, we're here because 25 North Carolina's governor refused to negotiate an 42 1 interstate compact to divvy up the river, so I don't 2 think all the blame lays at South Carolina's feet 3 here. 4 SPECIAL MASTER MYLES: I think what we can do 5 in the meantime -- I somewhat agree with the 6 proposition that there's a short time between now, we 7 hope, and resolution of intervention, at which time we 8 can take up the full trial schedule discussions and 9 try to get that in place very promptly. But in the 10 meantime, I do think there's things that can be done 11 that will not be delayed. So why don't we focus on 12 that? 13 I think your point, Mr. Frederick, is well 14 taken, that I'd certainly like to have something in 15 place. But given the very short time now between what 16 we have -- the current time and hopefully some sort of 17 April resolution of the intervention. I think we may 18 as well just try to identify now what issues we can 19 agree on and we can put in place and/or have decided. 20 We don't have to agree on them all, but just things 21 that can be put into place now by way of trying to 22 refine the issues. 23 MR. FREDERICK: Very well. We'll endeavor to 24 do the best we can. 25 MR. GULICK: Likewise. This is Jim Gulick. 43 1 SPECIAL MASTER MYLES: So shall we have -- we 2 have a case management -- we have a conference 3 scheduled; is that right? 4 We have one scheduled, Special Master Myles, 5 on -- 6 SPECIAL MASTER MYLES: February 5th. 7 MR. FREDERICK: 5th at 2:00 p.m. Eastern 8 time. 9 SPECIAL MASTER MYLES: So does it make sense 10 to wait until that conference to try to resolve or 11 schedule the next discussion of the phases? 12 MR. GULICK: I think so. Special Master 13 Myles, this is Jim Gulick. Because we are going to be 14 discussing that further and hopefully we will have 15 better refined sort of what the phase, the phase 16 issues are. And that there may be some subsidiary 17 issues that the parties don't agree about, but I think 18 that will be helpful both to the parties as well as to 19 you. And that's something we could report back by 20 that next conference. 21 SPECIAL MASTER MYLES: Okay. 22 MR. GULICK: Perhaps in our report. Unless 23 you'd prefer it in some other way. 24 SPECIAL MASTER MYLES: No, that's fine. 25 MR. FREDERICK: Special Master Myles, this is 44 1 David Frederick. As a housekeeping matter, I think 2 the February 5th call is the only other one that we 3 have calendared. 4 SPECIAL MASTER MYLES: That's the only one I 5 have. 6 MR. FREDERICK: Perhaps we might set a time 7 for March as well. 8 MR. GULICK: Special Master Myles, this is 9 Jim Gulick. I notice that our response brief is due 10 the 9th. I think we would probably prefer that the 11 conference be sometime after the 9th. The brief to 12 the Supreme Court. 13 SPECIAL MASTER MYLES: Yeah. 14 MR. GULICK: Sometime in the week of the 9th 15 but not on the 9th. 16 SPECIAL MASTER MYLES: We could do it on the 17 12th. Does that work for people? 18 MR. GULICK: Thursday, March 12th? 19 SPECIAL MASTER MYLES: Yes. Do you want to 20 make it 2 o'clock again? Shall we make it the same 21 time as today's? 2:00 p.m. Pacific. I mean, Eastern. 22 MR. GULICK: 2:00 p.m. Eastern is good for us 23 in North Carolina. This is Jim Gulick. 24 MR. FREDERICK: Same for South Carolina. 25 MS. SEITZ: Fine with Duke. 45 1 MR. BANKS: Charlotte can make that. 2 MS. DRISCOLL: CRWSP can make that as well. 3 SPECIAL MASTER MYLES: Does it make sense to 4 include in the issues for that conference a discussion 5 of -- we've talked about legal issues. But the one 6 that keeps recurring is this issue about Colorado 7 versus New Mexico, how it applies and how it would 8 apply in a Phase 1 situation like we're contemplating 9 here. I just wonder, is that an issue that we ought 10 to try to resolve? 11 MR. FREDERICK: Special Master Myles, David 12 Frederick. We strenuously disagree with trying to 13 have an advisory opinion about the allocation of a 14 case before we've finished developing the facts. 15 MR. GULICK: Special Master Myles, this is 16 Jim Gulick. I agree, actually, with the point that 17 Mr. Frederick just made with regard to the issue that 18 I discussed at some length. There are other 19 principles in that case that have more general 20 application, which are also -- you could cite 21 Massachusetts -- Connecticut versus Massachusetts and 22 New Jersey versus New York have similar -- some 23 similar issues. 24 But the one that was unique to that case I 25 agree with Mr. Frederick that that's something that 46 1 really awaits more factual development. It sounds 2 like you will be called upon to decide it. But it 3 would be better that you -- that that occurred when 4 you had a fuller presentation from the parties as to 5 the facts. 6 SPECIAL MASTER MYLES: Okay. That's what I 7 was trying to ask you before when you said factual 8 development. Okay. 9 MR. GULICK: That what the parties assert is 10 actually happening in this river. And how much water 11 is, in fact, being consumed by the two states in 12 comparison to the total volume of the river, things 13 like that. 14 SPECIAL MASTER MYLES: That's good. Good 15 enough. I think we have a good schedule for the next 16 meeting. Is there anything else we have for today? 17 Okay. Well, good enough then. I think we're 18 finished. 19 20 21 22 23 24 25 47 1 I, the undersigned, a Certified Shorthand 2 Reporter of the State of California, do hereby 3 certify: 4 That the foregoing proceedings were taken 5 before me at the time and place herein set forth; that 6 any witnesses in the foregoing proceedings, prior to 7 testifying, were duly sworn; that a record of the 8 proceedings was made by me using machine shorthand 9 which was thereafter transcribed under my direction; 10 that the foregoing transcript is a true record of the 11 testimony given. 12 Further, that if the foregoing pertains to 13 the original transcript of a deposition in a Federal 14 Case, before completion of the proceedings, review of 15 the transcript [ ] was [ ] was not requested. 16 I further certify that I am neither 17 financially interested in the action nor a relative or 18 employee of any attorney or party to this action. 19 IN WITNESS WHEREOF, I have this date 20 subscribed my name. 21 22 Dated: 23 24 _____________________________ DANA FREED 25 CSR No. 10602