KANSAS v. COLORADO on exceptions to report of special master

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CASES ADJUDGED
IN THE
SUPREME COURT OF THE UNITED STATES
AT
OCTOBER TERM, 2000
KANSAS v. COLORADO
on exceptions to report of special master
No. 105, Orig. Argued March 19, 2001—Decided June 11, 2001
The Arkansas River rises in Colorado and flows through Kansas and sev-
eral other States before emptying into the Mississippi River. In 1949,
Congress approved the Arkansas River Compact (Compact), which Col-
orado and Kansas negotiated, and which provided in Article IV–D that,
inter alia, future development of the river basin could not materially
deplete the usable quantity or availability to other users of the river’s
waters. In 1986, Kansas filed a complaint alleging that Colorado had
violated the Compact. In his first report, the Special Master found
that post-Compact increases in groundwater well pumping in Colorado
had materially depleted the waters in violation of Article IV–D; in
his second report, he recommended that damages be awarded to Kan-
sas; and in his third report, he recommended that such damages be
measured by Kansas’ losses attributable to Compact violations since
1950, be paid in money not water, and include prejudgment interest
from 1969 to the date of judgment. Colorado has filed four objections
to the third report, Kansas has filed one, and the United States submits
that all objections should be overruled.
Held:
1. The recommended damages award does not violate the Eleventh
Amendment. Thus, Colorado’s first exception is overruled. Colorado
contends that the Amendment precludes damages based on losses sus-
tained by individual Kansas farmers, as the Report recommends. Kan-
sas has unquestionably made the required showing that it has a direct
interest of its own and is not merely seeking recovery for the benefit of
1

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2 KANSAS v. COLORADO
Syllabus
individuals who are the real parties in interest. Oklahoma ex rel.
Johnson v. Cook, 304 U. S. 387, 396. This is but one of several proceed-
ings in which Kansas’ own interest in preventing upstream diversion of
the river has justified the exercise of this Court’s original jurisdiction.
Kansas has been in full control of this litigation since its inception, and
its right to control the disposition of any recovery of damages is unen-
cumbered. The injury to individual farmers is but one component of
the formula adopted by the Special Master to quantify damages here.
When a State properly invokes this Court’s original jurisdiction, neither
the measure of, nor the method for calculating, damages can retrospec-
tively negate that jurisdiction. Nor would jurisdiction be affected by
Kansas’ postjudgment decision about whether to deposit the money re-
covered in its general coffers or use the money to benefit those who
were hurt by the violation. Pp. 7–9.
2. The unliquidated nature of Kansas’ money damages does not bar
an award of prejudgment interest. Thus, Colorado’s second exception
is overruled. This Court has long recognized that the common-law dis-
tinction between liquidated and unliquidated damages is unsound,
Funkhouser v. J. B. Preston Co., 290 U. S. 163, 168, and that a monetary
award does not fully compensate for an injury unless it includes an inter-
est component, see, e. g., Milwaukee v. Cement Div., National Gypsum
Co., 515 U. S. 189, 195. The Special Master acted properly in declining
to follow this long-repudiated common-law rule. Pp. 9–12.
3. The Special Master determined the appropriate rate for the pre-
judgment interest award and determined that interest should begin
running in 1969. Colorado’s third exception is overruled insofar as
it challenges the interest rates and sustained insofar as it challenges
the Special Master’s recommendation that the interest should begin
to accrue in 1969. Kansas’ exception that the interest should begin to
accrue in 1950 is overruled. Pp. 12–16.
(a) Because this Court has decided that Kansas could measure a
portion of its damages by individual farmers’ losses, the interest rates
applicable to individuals in the relevant years, rather than the lower
rates available to States, may properly be used to calculate damages.
Pp. 12–13.
(b) The Special Master concluded that interest should be awarded
according to fairness considerations rather than a rigid theory of com-
pensation for money withheld. Kansas’ argument that this Court has
effectively foreclosed that equities-balancing approach has some merit,
but this Court cannot say that by 1949 the Court’s case law had devel-
oped sufficiently to put Colorado on notice that prejudgment interest
would automatically be awarded from the time of injury for a Compact
violation. Therefore, the Special Master acted properly in analyzing

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3 Cite as: 533 U. S. 1 (2001)
Syllabus
this case’s facts and awarding only as much prejudgment interest as
was required by balancing the equities. The equities support an award
beginning on a date later than the date of first violation. The factors
the Special Master considered—that no one thought that the pact was
being violated in the early years after it was signed and that a long
interval passed between the original injuries and these proceedings, as
well as the dramatic impact of compounding interest over many years—
fully justify his view that prejudgment interest should not be awarded
for any years before either party was aware of the excessive pumping.
Colorado suggests that prejudgment interest should begin to accrue in
1985, the year the complaint was filed, rather than 1969, when Colorado
knew or should have known that it was violating the Compact. Though
the issue is close, the equities favor the later date. In overruling Colo-
rado’s exceptions to the second report, this Court held that Kansas
was not guilty of inexcusable delay in failing to complain more promptly
about the post-Compact pumping because the nature and extent of the
violations were unclear even years after the violation became obvious.
That conclusion is a double-edged sword. Both States’ interests would
have been served had the claim been advanced promptly after its
basis became known, and it was clear that once the proceedings started
they would be complex and protracted. Given the uncertainty over the
damages’ scope that prevailed from 1968 and 1985 and the fact Kansas
had the power to begin the process by which those damages would be
quantified, Colorado’s request that the Court deny prejudgment interest
for that time is reasonable. Pp. 13–16.
4. The Special Master properly determined the value of the crop
losses attributable to Compact violations. Thus, Colorado’s fourth
exception is overruled. Kansas and Colorado disagreed as to how much
additional crop yield would have been produced with the missing water.
Kansas’ experts relied upon the hypothesis of a generally linear rela-
tionship between water available for use and increased crop yields.
Colorado, whose own expert recanted an alternative proposal for cal-
culating damages, attempts to poke holes in Kansas’ methodology
through a speculative application of economic theory. That attack is
unpersuasive, given Colorado’s inability to mount an effective challenge
to Kansas’ experts on their own terms and its complete failure to pro-
vide a plausible alternative estimate of crop damage. Pp. 16–20.
Colorado’s exceptions sustained in part and overruled in part; Kansas’
exception overruled; and case remanded.
Stevens, J., delivered the opinion of the Court, Parts I, IV, and V
of which were unanimous, and Parts II and III of which were joined
by Rehnquist, C. J., and Kennedy, Souter, Ginsburg, and Breyer,

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4 KANSAS v. COLORADO
Opinion of the Court
JJ. O’Connor, J., filed an opinion concurring in part and dissenting in
part, in which Scalia and Thomas, JJ., joined, post, p. 20.
John B. Draper, Special Assistant Attorney General of
Kansas, argued the cause for plaintiff. With him on the
briefs were Carla J. Stovall, Attorney General, John W.
Campbell, Chief Deputy Attorney General, John M. Cassidy,
Assistant Attorney General, Leland E. Rolfs, Special Assist-
ant Attorney General, and Andrew S. Montgomery.
Jeffrey P. Minear argued the cause for intervenor United
States. With him on the briefs were Solicitor General
Waxman, Assistant Attorney General Schiffer, Deputy So-
licitor General Kneedler, and Patricia Weiss.
David W. Robbins, Special Assistant Attorney General of
Colorado, argued the cause for defendant. With him on the
briefs were Ken Salazar, Attorney General, Carol D. Angel,
Senior Assistant Attorney General, and Dennis M. Mont-
gomery, Special Assistant Attorney General.
Justice Stevens delivered the opinion of the Court.
The Arkansas River rises in the mountains of Colorado
just east of the Continental Divide, descends for about 280
miles to the Kansas border, then flows through that State,
Oklahoma, and Arkansas and empties into the Mississippi
River. On May 20, 1901, Kansas first invoked this Court’s
original jurisdiction to seek a remedy for Colorado’s di-
version of water from the Arkansas River. See Kansas
v. Colorado, 185 U. S. 125, 126 (1902) (statement of case).
In opinions written during the past century, most recently
in Kansas v. Colorado, 514 U. S. 673, 675–678 (1995), we have
described the history and the importance of the river. For
present purposes it suffices to note that two of those cases,
Kansas v. Colorado, 206 U. S. 46 (1907), and Colorado v.
Kansas, 320 U. S. 383 (1943), led to the negotiation of the
Arkansas River Compact (Compact), an agreement between
Kansas and Colorado that in turn was approved by Congress
in 1949. See 63 Stat. 145. The case before us today in-

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Opinion of the Court
volves a claim by Kansas for damages based on Colorado’s
violations of that Compact.
The Compact was designed to “[s]ettle existing disputes
and remove causes of future controversy” between the two
States and their citizens concerning waters of the Arkan-
sas River and to “[e]quitably divide and apportion” those
waters and the benefits arising from construction and opera-
tion of the federal project known as the “John Martin Reser-
voir.” Arkansas River Compact, Art. I, reprinted in App.
to Brief for Kansas A–1, A–2. Article IV–D of the Com-
pact provides:
“This Compact is not intended to impede or prevent
future beneficial development of the Arkansas River
basin in Colorado and Kansas by Federal or State agen-
cies, by private enterprise, or by combinations thereof,
which may involve construction of dams, reservoir, and
other works for the purpose of water utilization and con-
trol, as well as the improved or prolonged functioning
of existing works: Provided, that the waters of the
Arkansas River, as defined in Article III, shall not be
materially depleted in usable quantity or availability for
use to the water users in Colorado and Kansas under
this Compact by such future development or construc-
tion.” Id., at A–5.
It is the proviso to that paragraph that is of special rele-
vance to this case.
In 1986, we granted Kansas leave to file a complaint al-
leging three violations of the Compact by Colorado. See
514 U. S., at 679–680. After taking evidence in the liability
phase of the proceeding, Special Master Arthur L. Little-
worth filed his first report, in which he recommended
that two of the claims be denied, but that the Court find
that post-Compact increases in groundwater well pumping
in Colorado had materially depleted the waters of the river
in violation of Article IV–D. See id., at 680. We overruled

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6 KANSAS v. COLORADO
Opinion of the Court
Colorado’s exceptions to that recommendation, including an
argument that Kansas was guilty of laches. Id., at 687–689.
We remanded the case to the Special Master to determine
an appropriate remedy for the violations of Article IV–D.
Id., at 694.
After further proceedings the Special Master filed a sec-
ond report recommending an award of damages. Colorado
filed exceptions to that report, arguing that the Elev-
enth Amendment barred an award based on losses incurred
by Kansas citizens, and that the report improperly recom-
mended the recovery of prejudgment interest on an un-
liquidated claim. We overruled those exceptions without
prejudice to their renewal after the Special Master made
a more specific recommendation for a remedy. 522 U. S.
1073 (1998). He did so in his third report, and we are now
confronted with exceptions filed by both States.
In the third report, the Special Master recommends that
damages be measured by Kansas’ losses, rather than Colo-
rado’s profits, attributable to Compact violations after 1950;
that the damages be paid in money rather than water; and
that the damages should include prejudgment interest from
1969 to the date of judgment. Colorado has filed four objec-
tions to the report. It contends (1) that the recommended
award of damages would violate the Eleventh Amendment
to the United States Constitution; (2) that the damages
award should not include prejudgment interest; (3) that
the amount of interest awarded is excessive; and (4) that the
Special Master improperly credited flawed expert testimony,
with the result that Kansas’ crop production losses were
improperly calculated. On the other hand, Kansas has filed
an objection submitting that prejudgment interest should
be paid from 1950, rather than 1969. The United States,
which intervened because of its interest in the operation
of flood control projects in Colorado, submits that both
States’ objections should be overruled.

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7 Cite as: 533 U. S. 1 (2001)
Opinion of the Court
I
We have decided that a State may recover monetary
damages from another State in an original action, without
running afoul of the Eleventh Amendment.1 See, e. g.,
Texas v. New Mexico, 482 U. S. 124, 130 (1987) (“The Court
has recognized the propriety of money judgments against
a State in an original action, and specifically in a case in-
volving a compact. In proper original actions, the Elev-
enth Amendment is no barrier, for by its terms, it applies
only to suits by citizens against a State” (citations omitted));
see also Maryland v. Louisiana, 451 U. S. 725, 745, n. 21
(1981); South Dakota v. North Carolina, 192 U. S. 286, 317–
321 (1904). Colorado contends, however, that the Eleventh
Amendment precludes any such recovery based on losses
sustained by individual water users in Kansas.
It is firmly established, and undisputed in this litigation,
that the text of the Eleventh Amendment would bar a di-
rect action against Colorado by citizens of Kansas. More-
over, we have several times held that a State may not in-
voke our original jurisdiction when it is merely acting as
an agent or trustee for one or more of its citizens. For ex-
ample, in New Hampshire v. Louisiana, 108 U. S. 76 (1883),
we refused to assume jurisdiction over an action to recover
payment on defaulted bonds that had been formally assigned
to the state plaintiffs but remained beneficially owned by
private individuals. And, in North Dakota v. Minnesota,
263 U. S. 365 (1923), we held that, while the plaintiff State
could obtain an injunction against the improper operation
of Minnesota’s drainage ditches, the Eleventh Amendment
precluded an award of damages based on injuries to indi-
vidual farmers, where the damages claim was financed by
1 That Amendment provides: “The Judicial power of the United States
shall not be construed to extend to any suit in law or equity, commenced
or prosecuted against one of the United States by Citizens of another
State, or by Citizens or Subjects of any Foreign State.”

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8 KANSAS v. COLORADO
Opinion of the Court
contributions from the farmers and the State had committed
to dividing any recovery among the farmers “in proportion
to the amount of [their] loss.” Id., at 375.
Those cases make it clear that a “State is not permitted to
enter a controversy as a nominal party in order to forward
the claims of individual citizens.” Maryland v. Louisiana,
451 U. S., at 737; see also New Hampshire v. Louisiana, 108
U. S., at 89 (Eleventh Amendment applies and acts to bar
jurisdiction where “the State and the attorney-general are
only nominal actors in the proceeding”). The “governing
principle” is that in order to invoke our original jurisdiction,
“the State must show a direct interest of its own and not
merely seek recovery for the benefit of individuals who are
the real parties in interest.” Oklahoma ex rel. Johnson v.
Cook, 304 U. S. 387, 396 (1938).
Kansas has unquestionably made such a showing. Indeed,
the present proceeding is but one of several in which Kansas’
own interest in preventing upstream diversions from the
Arkansas River has justified an exercise of our original juris-
diction. In Cook we even offered as an example of proper
original jurisdiction one of the prior original suits between
Kansas and Colorado, see id., at 393–394 (citing Kansas v.
Colorado, 206 U. S. 46 (1907)), and in Texas v. New Mexico
we held that enforcement of an interstate water compact
by means of a recovery of money damages can be within a
State’s proper pursuit of the “general public interest” in an
original action, 482 U. S., at 132, n. 7.
Moreover, the record in this case plainly discloses that
the State of Kansas has been in full control of this litigation
since its inception. Its right to control the disposition of any
recovery of damages is entirely unencumbered. The injury
to individual farmers is but one component of the formula
adopted by the Special Master to quantify the damages
caused by Colorado’s violation of its contractual obligations.
In short, there is simply nothing in the record to suggest
that the State of Kansas is merely a “nominal party” to this

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Opinion of the Court
litigation or that the individual farmers are “the real parties
in interest.”
When a State properly invokes our jurisdiction to seek
redress for a wrong perpetrated against it by a sister State,
neither the measure of damages that we ultimately de-
termine to be proper nor our method for calculating those
damages can retrospectively negate our jurisdiction. Nor
would our jurisdiction to order a damages remedy be af-
fected by Kansas’ postjudgment decisions concerning the
use of the money recovered from Colorado. As we have
previously recognized, it is the State’s prerogative either
to deposit the proceeds of any judgment in “the general
coffers of the State” or to use them to “benefit those who
were hurt.” Ibid.
We overrule Colorado’s first exception.
II
Colorado next excepts to the Special Master’s conclusion
that the damages award should include prejudgment interest
despite the fact that Kansas’ claim is unliquidated.2 At one
point in time, the fact that the claim was unliquidated would
have been of substantial importance. As a general matter,
early common-law cases drew a distinction between liqui-
dated and unliquidated claims and refused to allow interest
on the latter. See, e. g., Comment, Prejudgment Interest:
2 Though final damages have not yet been calculated, the importance
of this issue is illustrated by breaking down the damages claimed by
Kansas. Of $62,369,173 in damages so claimed, $9,218,305 represents
direct and indirect losses in actual dollars when the damage occurred.
Of the remaining $53,150,868, about $12 million constitutes an adjustment
for inflation (a type of interest that Colorado concedes is appropriate)
while the remaining amount (approximately $41 million) represents
additional interest intended to compensate for lost investment opportu-
nities. Third Report of Special Master 87–88 (hereinafter Third Report).
The magnitude of prejudgment interest ultimately awarded in this case
will, of course, turn on the date from which interest accrues. See Part
III–B, infra.

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10 KANSAS v. COLORADO
Opinion of the Court
Survey and Suggestion, 77 Nw. U. L. Rev. 192, 196, and n. 26
(1982) (discussing history and collecting sources). This rule
seems to have rested upon a belief that there was something
inherently unfair about requiring debtors to pay interest
when they were unable to halt its accrual by handing over
to their creditors a fixed and unassailable amount. See, e. g.,
id., at 196.
This common-law distinction has long since lost its hold
on the legal imagination. Beginning in the early part of the
last century, numerous courts and commentators have re-
jected the distinction for failing to acknowledge the compen-
satory nature of interest awards.3 This Court allied itself
with the evolving consensus in 1933, when we expressed the
opinion that the distinction between cases of liquidated and
unliquidated damages “is not a sound one.” Funkhouser v.
J. B. Preston Co., 290 U. S. 163, 168 (1933). The analysis
supporting that conclusion gave no doubt as to our reasoning:
“Whether the case is of the one class or the other, the in-
jured party has suffered a loss which may be regarded as
not fully compensated if he is confined to the amount found
to be recoverable as of the time of breach and nothing is
added for the delay in obtaining the award of damages.”
Ibid. Our cases since 1933 have consistently acknowledged
that a monetary award does not fully compensate for an
injury unless it includes an interest component. See, e. g.,
Milwaukee v. Cement Div., National Gypsum Co., 515 U. S.
189, 195 (1995) (“The essential rationale for awarding pre-
3 For sources from the early part of the century criticizing, qualifying,
or rejecting the distinction, see, e. g., Faber v. New York, 222 N. Y. 255,
262, 118 N. E. 609, 610–611 (1918); Bernhard v. Rochester German Ins.
Co., 79 Conn. 388, 398, 65 A. 134, 138 (1906); Restatement of Contracts
§ 337, p. 542 (1932); C. McCormick, Law of Damages § 51, p. 210 (1935); 1
T. Sedgwick, Measure of Damages § 315 (9th ed. 1912); cf. 3 S. Williston,
Law of Contracts § 1413, p. 2508 (1920) (“The disinclination to allow in-
terest on claim of uncertain amount seems based on practice rather
than theoretical grounds”). For a thorough modern treatment of the
issue, see 1 D. Dobbs, Law of Remedies § 3.6(3) (2d ed. 1993).

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Opinion of the Court
judgment interest is to ensure that an injured party is fully
compensated for its loss”); West Virginia v. United States,
479 U. S. 305, 310–311, n. 2 (1987); General Motors Corp. v.
Devex Corp., 461 U. S. 648, 655–656, n. 10 (1983).
Relying on our cases, the Special Master “concluded that
the unliquidated nature of Kansas’ money damages does
not, in and of itself, bar an award of prejudgment interest.”
Second Report, § XV, reprinted in App. to Third Report 43.
In reaching that conclusion, the Special Master was fully
cognizant of both the displaced common-law rule and the
subsequent doctrinal evolution. In addition, he gave care-
ful consideration to equitable considerations that might
mitigate against an award of interest, concluding that “con-
siderations of fairness,” Board of Comm’rs of Jackson Cty.
v. United States, 308 U. S. 343, 352 (1939), supported the
award of at least some prejudgment interest in this case.
We find no fault in the Special Master’s analysis of either
our prior cases or the equities of this matter. While we
will deal with the amount of prejudgment interest below,
to answer Colorado’s second objection it is sufficient to con-
clude that the Special Master was correct in determining
that the unliquidated nature of the damages does not pre-
clude an award of prejudgment interest.4
4 Justice O’Connor argues that the state of the law was insufficiently
evolved by 1949 for Colorado to have had notice that the courts might
award prejudgment interest if it violated its obligations under the Com-
pact. See post, at 21–25 (opinion concurring in part and dissenting in
part). Though the law was indeed in flux at that time, this Court had
already made it clear that it put no stock in the traditional common-law
prohibition, see Funkhouser v. J. B. Preston Co., 290 U. S. 163, 168 (1933),
and had stated explicitly that such interest may accrue when “consid-
erations of fairness” demand it, see Board of Comm’rs of Jackson Cty. v.
United States, 308 U. S. 343, 352 (1939). The contemporary Restatement
of Contracts was in accord. See Restatement of Contracts § 337(b), at 542
(“Where the contract that is broken [is not for a set or easily ascer-
tainable amount of money], interest may be allowed in the discre-
tion of the court, if justice requires it, on the amount that would have
been just compensation if it had been paid when performance was

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12 KANSAS v. COLORADO
Opinion of the Court
Colorado’s second exception is overruled.
III
Colorado’s third exception takes issue with both the
rate of interest adopted by the Special Master and the date
from which he recommended that interest begin to accrue.
As to the second of these two concerns, Colorado submits
that, if any prejudgment interest is to be awarded, it should
begin to accrue in 1985 (when Kansas filed its complaint in
this action), rather than in 1969 (when, the Special Master
concluded, Colorado knew or should have known that it
was violating the Compact). On the other hand, Kansas has
entered an exception, arguing that the accrual of interest
should begin in 1950. We first address the rate question,
then the timing issue.
A
The Special Master credited the testimony of Kansas’
three experts who calculated the interest rates that they
thought necessary to provide full compensation for the dam-
ages caused by Colorado’s violations of the Compact in the
years since 1950. As a result of inflation and changing mar-
ket conditions those rates varied from year to year. In their
calculation of the damages suffered by Kansas farmers, the
experts used the interest rates that were applicable to in-
dividuals in the relevant years rather than the (lower) rates
available to States.
due”). Under those circumstances, we think it is clear that, in 1949, an
informed contracting party would not have concluded that an agreement’s
silence on the issue deprived a reviewing court of the authority to award
compensatory interest if the party willfully violated its contractual obliga-
tions. Moreover, under Justice O’Connor’s reasoning, States who en-
tered into interstate compacts before 1987, see post, at 23, would retain
a perpetual incentive to breach their contractual obligations and reap
the benefits of such a breach with the full knowledge that the courts lack
the authority to order a fully compensatory remedy.

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Opinion of the Court
Colorado argues that the lower rates should have been
used because it is the State, rather than the individual farm-
ers, that is maintaining the action and will receive any award
of damages. But if, as we have already decided, see Part I,
supra, it is permissible for the State to measure a portion
of its damages by losses suffered by individual farmers, it
necessarily follows that the courts are free to utilize what-
ever interest rate will most accurately measure those losses.
The money in question in this portion of the damages award
is revenue that would—but for Colorado’s actions—have
been earned by individual farmers. Thus, the Special Mas-
ter correctly concluded that the economic consequences of
Colorado’s breach could best be remedied by an interest
award that mirrors the cost of any additional borrowing
the farmers may have been forced to undertake in order
to compensate for lost revenue.
B
Although the Special Master rejected Colorado’s sub-
mission that there is a categorical bar to the award of pre-
judgment interest on unliquidated claims, he concluded that
such interest should not “be awarded according to [any] rigid
theory of compensation for money withheld,” but rather
should respond to “ ‘considerations of fairness.’ ” Third Re-
port 97 (quoting Jackson Cty., 308 U. S., at 352). Kansas
argues that our decisions subsequent to Jackson County
have effectively foreclosed the equities-balancing approach
that the Special Master adopted. There is some merit to
Kansas’ position. See National Gypsum Co., 515 U. S., at
193 (affirming a decision of the Court of Appeals that had
read our cases as “disapproving of a ‘balancing of the equi-
ties’ as a method of deciding whether to allow prejudgment
interest”).
However, despite the clear direction indicated by some
of our earlier opinions, we cannot say that by 1949 our case
law had developed sufficiently to put Colorado on notice

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14 KANSAS v. COLORADO
Opinion of the Court
that, upon a violation of the Compact, we would auto-
matically award prejudgment interest from the time of in-
jury. Given the state of the law at that time, Colorado may
well have believed that we would balance the equities in
order to achieve a just and equitable remedy, rather than
automatically imposing prejudgment interest in order to
achieve full compensation. See Jackson Cty., 308 U. S., at
352 (prejudgment interest award limited by “considerations
of fairness”); Miller v. Robertson, 266 U. S. 243, 258 (1924)
(“[W]hen necessary in order to arrive at fair compensation,
the court in the exercise of a sound discretion may include
interest or its equivalent as an element of damages” on un-
liquidated claims); Restatement of Contracts § 337, p. 542
(1932) (prejudgment interest on unliquidated claims “may
be allowed in the discretion of the court, if justice re-
quires it”). While we are confident that, when it signed
the Compact, Colorado was on notice that it might be sub-
ject to prejudgment interest if such interest was neces-
sary to fashion an equitable remedy, we are unable to con-
clude with sufficient certainty that Colorado was on notice
that such interest would be imposed as a matter of course.
We, therefore, believe that the Special Master acted prop-
erly in carefully analyzing the facts of the case and in only
awarding as much prejudgment interest as was required by
a balancing of the equities.
We also agree with the Special Master that the equities in
this case do not support an award of prejudgment interest
from the date of the first violation of the Compact, but rather
favor an award beginning on a later date. In reaching this
conclusion, the Special Master appropriately considered sev-
eral factors. In particular, he relied on the fact that in the
early years after the Compact was signed, no one had any
thought that the pact was being violated. Third Report 106.
In addition, he considered the long interval that passed be-
tween the original injuries and these proceedings, as well
as the dramatic impact of compounding interest over many
years. Id., at 99–101; see also n. 3, supra.

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15 Cite as: 533 U. S. 1 (2001)
Opinion of the Court
In its exception, Kansas argues that the Special Master’s
reasoning would be appropriate if damages were being
awarded as a form of punishment, but does not justify a
refusal to provide full compensation to an injured party.
Moreover, Kansas argues, a rule that rewards ignorance
might discourage diligence in making sure that there is full
compliance with the terms of the Compact. Kansas’ argu-
ment is consistent with a “rigid theory of compensation for
money withheld,” but, for the reasons discussed above, we
are persuaded that the Special Master correctly declined to
adopt such a theory. The equitable considerations identi-
fied by the Special Master fully justify his view that in this
case it would be inappropriate to award prejudgment in-
terest for any years before either party was aware of the
excessive pumping in Colorado.
In its third exception, Colorado argues that, if prejudg-
ment interest is to be awarded at all, the equities are best
balanced by limiting such interest to the time after the com-
plaint was filed, rather than the time after which Colorado
knew or should have known that it was violating the Com-
pact. Specifically, Colorado suggests that prejudgment in-
terest should begin to accrue in 1985 rather than 1969. The
choice between the two dates is surely debatable; it is a
matter over which reasonable people can—and do—disagree.
After examining the equities for ourselves, however, a ma-
jority of the Court has decided that the later date is the
more appropriate.5
5 Justice O’Connor, Justice Scalia, and Justice Thomas would
not allow any prejudgment interest. See post, at 20. Justice Kennedy
and The Chief Justice are of the opinion that prejudgment interest
should run from the date of the filing of the complaint. Justice Souter,
Justice Ginsburg, Justice Breyer, and the author of this opinion
agree with the Special Master’s view that interest should run from the
time when Colorado knew or should have known that it was violating
the Compact. In order to produce a majority for a judgment, the four
Justices who agree with the Special Master have voted to endorse the
position expressed in the text.

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16 KANSAS v. COLORADO
Opinion of the Court
When we overruled Colorado’s objections to the Special
Master’s first report, we held that Kansas was not guilty
of inexcusable delay in failing to complain more promptly
about post-Compact well pumping. 514 U. S., at 687–689.
In saying that the delay was not inexcusable, we recog-
nized that the nature and extent of Colorado’s violations
continued to be unclear even in the years after which it
became obvious that the Compact was being violated. Id.,
at 688–689. That conclusion is something of a two-edged
sword, however. While Kansas’ delay was understandable
given the amorphous nature of its claims, there is no doubt
that the interests of both States would have been served
if the claim had been advanced promptly after its basis
became known. Once it became obvious that a violation
of the Compact had occurred, it was equally clear that the
proceedings necessary to evaluate the significance of the vio-
lations would be complex and protracted. Despite the dili-
gence of the parties and the Special Master, over 15 years
have elapsed since the complaint was filed. Given the un-
certainty over the scope of damages that prevailed during
the period between 1968 and 1985 and the fact that it was
uniquely in Kansas’ power to begin the process by which
those damages would be quantified, Colorado’s request that
we deny prejudgment interest for that period is reasonable.
For these reasons, we overrule Kansas’ exception. We
also overrule Colorado’s third exception insofar as it chal-
lenges the interest rates recommended by the Special Mas-
ter, but we sustain that objection insofar as it challenges
the award of interest for the years prior to 1985.
IV
Colorado’s final objection challenges the Special Master’s
determination of the value of the crop losses attributable
to the Compact violations, the largest component of Kansas’
damages claim. The Special Master accomplished the cal-
culation by estimating the amount of farmland affected by

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17 Cite as: 533 U. S. 1 (2001)
Opinion of the Court
Colorado’s violations, the crops planted on that farmland,
the price of those crops, and the difference in yield between
what the affected land would have produced with the addi-
tional water and what the land actually produced with the
water it received.
The parties were in agreement concerning most of the
facts bearing on the Special Master’s calculation. They
agreed that water was in short supply in the affected area
each year, 178 Tr. 127–128; they agreed on the amount of the
shortage that resulted from Colorado’s violations, ibid.; and
they generally agreed on which crops were planted on the
affected farmland as well as the prices of those crops in the
relevant years. See Third Report 46.
The only issue on which the parties disagreed was the
exact effect of the diverted water on the crop yields for
the farmland in question. On that score, both Kansas and
Colorado accepted the general notion that “[u]p to the
point where crops no longer can make use of additional
water, more water produces more crop yield.” Id., at 47.
But they parted ways on the question of precisely how much
additional yield would have been produced with the miss-
ing water.6 Kansas’ experts relied upon the hypothesis of
a generally linear relationship between water available for
6 As the Special Master noted, “Colorado experts did not dispute, in
general, the linear relationship between [water usage] and crop yield. . . .
However, they were of the view that the particular linear crop yield co-
efficients used by Kansas were not sufficiently reliable to determine the
increase in yields that would have occurred if there had been no depletions
of headgate deliveries to the [affected] lands.” Third Report 47. Colo-
rado suggests that Kansas’ model, based as it is upon academic studies,
does not adequately account for reductions in crop yield from such real-
world conditions as “weather, disease, and pests.” Brief for Colorado 44,
n. 12. But, as the Special Master correctly noted, Kansas’ experts re-
duced the predicted crop yield by 25% in order to account for such possi-
bilities. Third Report 51 (“The 25% reduction was calculated to adjust
the controlled experimental data to ‘realistic long-term type conditions’
in western Kansas, including high temperatures, winds, insects, and other
stressful conditions”).

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18 KANSAS v. COLORADO
Opinion of the Court
use and increased crop yields. With figures drawn from a
number of studies, Professor Norman Whittlesey, Kansas’
principal expert,7 developed quantitative estimates of the
lost yield, per unit of water, for the various crops grown on
the affected farmland. Although Colorado’s expert initially
attempted to propose his own model, he ultimately aban-
doned his position when confronted with flaws in his data.
197 Tr. 44–46.
Its own expert having recanted his alternative proposal
for calculating the effects of the diverted water on crop
yield, Colorado attempts to poke holes in Kansas’ method-
ology through a speculative application of abstract economic
theory. Kansas’ numbers (for crop losses due to diverted
water) cannot be correct, Colorado argues, because if they
were, it would have been economically profitable for the
affected farmers to drill wells and obtain water from under-
ground sources rather than suffer the reduced yield from
the shortage of surface water. Brief for Colorado 41–49.
Because Kansas farmers did not install wells, Colorado
concludes, we can know that the diverted water was not
as valuable as Kansas’ experts claim.
The Special Master did not question Colorado’s assertion
that digging wells would, in retrospect, actually have been
profitable for Kansas farmers, but he declined to employ
Colorado’s argument as a basis for rejecting Kansas’ ex-
pert testimony on the extent of crop losses. His thoughtful
analysis is worth quoting in full:
“Given the hindsight of present day economists, it
might have been profitable for everyone to drill supple-
mental wells . . . . However, there are many reasons
why this may not have been done, and the failure to
drill wells does not by itself indicate that Kansas’
7 Professor Whittlesey served for 20 years as a full professor and ag-
ricultural economist at Washington State University. His publications,
many of which concern the kind of issues presented by this case, fill
14 pages on his curriculum vitae. See Kan. Exh. 891.

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19 Cite as: 533 U. S. 1 (2001)
Opinion of the Court
estimate of crop losses is too high. The favorable eco-
nomics of drilling wells may not have been understood
at the time. Quality information regarding costs and
returns was not readily available. [211 Tr.] 31. Some
farmers, for reasons of age or otherwise, may not have
wanted to go into long-term debt. Some farmers may
not have had the available capital, or the credit to
borrow. Many farmers were ‘cash poor.’ Id. at 32.
Some farmers may have been averse to risk. Some
farmers may have been tenants, and the landlord may
not have been willing to undertake the necessary in-
vestment. Some farms may have been small in terms
of total acreage, or the acreage spread out over space,
so that it was not feasible or practical to consider a well
investment. [208 Tr.] 37–39. Capital for well invest-
ments, with three to ten year repayment periods, was
less available than for long-term investments. [211 Tr.]
32.” Third Report 60–61.
We agree with the Special Master that accepting Colo-
rado’s argument requires a good deal of speculation, not
only about the comparative advantages of wells as opposed
to irrigation, but also about the ability of the farmers fully
to understand or to implement different choices without
the benefit of expert hindsight. Given Colorado’s inability
to mount an effective challenge to Kansas’ experts on their
own terms and its complete failure to provide a plausible
alternative estimate of the crop damage that resulted from
its violations of the Compact, we conclude that its attack
on Kansas’ conclusions is unpersuasive.8
8 We also agree with the Special Master’s decision to disregard the
Colorado expert’s comparison of the numbers produced by Kansas’ model
with numbers drawn from the literature on the various crops planted on
the affected farmland. As Colorado admits, see Brief for Colorado 46,
the water values in the literature were not based on “a ‘short-short run’
situation, that is, an intra-seasonal transaction in which no capital costs
were involved, and only additional harvesting and irrigation costs would

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20 KANSAS v. COLORADO
Opinion of O’Connor, J.
Colorado’s fourth exception is overruled.
V
We remand the case to the Special Master for preparation
of a final judgment consistent with this opinion.
It is so ordered.
Justice O’Connor, with whom Justice Scalia and
Justice Thomas join, concurring in part and dissenting
in part.
I agree with the Court’s disposition of this case as to Colo-
rado’s first and fourth exceptions to the Special Master’s
Third Report, concerning the award and determination of
damages. I therefore join Parts I, IV, and V of the Court’s
opinion. I do not concur in Parts II and III of the Court’s
opinion because I believe that the award of prejudgment
interest to Kansas, coming over half a century after the Ar-
kansas River Compact’s (hereinafter Compact) negotiation
and approval, is clearly improper under our precedents.
We are dealing with an interstate compact apportioning
the flow of a river between two States. A compact is a con-
tract. It represents a bargained-for exchange between its
signatories and “remains a legal document that must be
construed and applied in accordance with its terms.” Texas
v. New Mexico, 482 U. S. 124, 128 (1987); see also Petty v.
Tennessee-Missouri Bridge Comm’n, 359 U. S. 275, 285
(1959) (Frankfurter, J., dissenting) (“A Compact is, after all,
a contract”). It is a fundamental tenet of contract law
that parties to a contract are deemed to have contracted
with reference to principles of law existing at the time the
contract was made. See, e. g., Norfolk & Western R. Co. v.
be required.” Third Report 63. Because the circumstances in Kansas
involved short-short run situations, and because such short-short run
situations generally involve higher values for water, values derived from
other contexts are of limited use in evaluating Kansas’ model. See ibid.

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21 Cite as: 533 U. S. 1 (2001)
Opinion of O’Connor, J.
Train Dispatchers, 499 U. S. 117, 129–130 (1991); Farmers
and Merchants Bank of Monroe v. Federal Reserve Bank
of Richmond, 262 U. S. 649, 660 (1923); see generally 11 Wil-
liston on Contracts § 30:19 (4th ed. 1999). The basic question
before the Court is thus one of “the fair intendment of the
contract itself.” Virginia v. West Virginia, 238 U. S. 202,
233 (1915). Specifically, the question is whether, at the time
the Compact was negotiated and approved, Colorado and
Kansas could fairly be said to have intended, or at least to
have expected or assumed, that Colorado might be exposing
itself to liability for prejudgment interest in the event of
the Compact’s breach. Cf. id., at 232–236 (awarding interest
to Virginia in a suit against West Virginia for breach of a
contract to assume “an equitable proportion” of Virginia’s
interest-bearing public debt upon finding that “there is no
escape from the conclusion that there was a contract duty
on the part of West Virginia to provide for accruing interest
as a part of the equitable proportion assumed”).
I fail to see how Colorado and Kansas could have con-
templated that prejudgment interest would be awarded.
The “venerable . . . rule” at common law was that prejudg-
ment interest was unavailable on claims for unliquidated or,
even more significantly, unascertainable damages. Milwau-
kee v. Cement Div., National Gypsum Co., 515 U. S. 189, 197
(1995). Contrary to the Court’s suggestion, see ante, at
9–11, 13–14, that rule had not been abandoned by the period
between 1943 and 1949, the years of the Compact’s negotia-
tion and ultimate approval by Congress. By that time, the
state of the law in general regarding awards of prejudgment
interest for unliquidated claims was uncertain at best, as the
Court itself recognizes. See ante, at 9–11, and n. 3; cf. ante,
at 13–14; see also Funkhouser v. J. B. Preston Co., 290 U. S.
163, 168 (1933) (noting “the numerous, and not harmonious,
decisions upon the allowance of interest in the case of unliq-
uidated claims,” and that “the rule with respect to unliqui-
dated claims has been in evolution”). To be sure, we had by

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22 KANSAS v. COLORADO
Opinion of O’Connor, J.
then, along with other courts, criticized the common law rule
that prejudgment interest was recoverable on claims for liq-
uidated, but not for unliquidated, damages. See ibid. But
in the absence of a statute providing for such interest, many
courts, including our own, still denied and would continue
to deny prejudgment interest on claims for unliquidated
and unascertainable damages in a great many, and probably
most, circumstances. See, e. g., Board of Comm’rs of Jack-
son Cty. v. United States, 308 U. S. 343, 353 (1939); Blau v.
Lehman, 368 U. S. 403, 414 (1962); Lineman v. Schmid, 32
Cal. 2d 204, 211, 195 P. 2d 408, 412 (1948) (Although “there is
authority to the effect that the distinction formerly existing
between liquidated and unliquidated demands is practically
obliterated, . . . further reading . . . discloses, with citation
of many cases, that the general rule is almost uniformly
adhered to, namely, that interest is not allowable where
the damages depend upon no fixed standard and cannot be
made certain except by accord, verdict or decree”); D. Dobbs,
Remedies § 3.5, p. 165 (1973) (“Most courts, in the absence
of a statute to the contrary, would not award interest on
unliquidated pecuniary claims, the amount of which could not
be ascertained or computed, even in theory, without a trial”);
see generally C. McCormick, Law of Damages § 51, p. 210
(1935) (explaining evolution of rule in America); see also 1
D. Dobbs, Law of Remedies § 3.6(1), p. 336 (2d ed. 1993) (“The
most significant limitation on the recovery of prejudgment
interest is the general rule that, apart from statute, pre-
judgment interest is not recoverable on claims that are
neither liquidated as a dollar sum nor ascertainable by fixed
standards” (footnotes omitted)).
Awards of such interest on claims for unliquidated and
unascertainable damages for breach of a contract appear to
have been rarer still. See, e. g., Williams v. Idaho Potato
Starch Co., 73 Idaho 13, 24, 245 P. 2d 1045, 1051–1052 (1952);
Meyer v. Strom, 37 Wash. 2d 818, 829–830, 226 P. 2d 218, 224
(1951); Lineman v. Schmid, supra, at 207–213, 195 P. 2d, at

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23 Cite as: 533 U. S. 1 (2001)
Opinion of O’Connor, J.
410–413; see also 3 Williston on Contracts § 1413, p. 2508
(1920) (“Interest is not generally allowed . . . where market
rates or prices furnish no definite or exact test of the amount
due” (footnote omitted)); 1 T. Sedgwick, Measure of Damages
§ 312, p. 614 (9th ed. 1912) (“Generally speaking, no interest
can be recovered for breach of a contract, where the damages
are in their nature unliquidated, until the amount is ascer-
tained” (footnote omitted)). In fact, at the time, they were
not allowed in either Colorado or Kansas. See, e. g., Clark
v. Giacomini, 85 Colo. 530, 536–537, 277 P. 306, 308 (1929);
Denver Horse Imp. Co. v. Schafer, 58 Colo. 376, 390, 147
P. 367, 372 (1915); Roe v. Snattinger, 91 Kan. 567, 568, 138
P. 581, 582 (1914); Evans v. Moseley, 84 Kan. 322, 332–333,
114 P. 374, 378 (1911).
Finally, and most important to this case, an award of
prejudgment interest on unliquidated and unascertainable
damages for breach of an interstate compact was unheard
of at the time of the Compact’s negotiation and approval.
Unlike cases involving bonds or other instruments of credit,
see, e. g., Virginia v. West Virginia, supra, at 232–236; South
Dakota v. North Carolina, 192 U. S. 286, 317–321 (1904),
monetary damages in cases of this sort, involving the appor-
tionment of water between States, are notoriously difficult
to ascertain. Indeed, despite 15 years of litigation over the
Compact, and resort to a great deal of data, expert testi-
mony, complicated methodologies, and sophisticated analyses
on the subject, the final value of Kansas’ damages still has
yet to be determined. See ante, at 9, n. 2; see also Third
Report §§ III to X (detailing and analyzing the numerous
variables and data elements necessary to arrive at a determi-
nation of Kansas’ damages). It thus is not surprising that,
until 1987, we had never even suggested that monetary dam-
ages could be recovered from a State as a remedy for its
violation of an interstate compact apportioning the flow
of an interstate stream. And when we first allowed such
damages in Texas v. New Mexico, 482 U. S. 124 (1987), we

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24 KANSAS v. COLORADO
Opinion of O’Connor, J.
did so partially at the behest of New Mexico, the breaching
State. See id., at 129–132. How, then, can one say that,
at the time the Compact was negotiated and approved, its
signatories could fairly be said to have intended, or at
least could reasonably be said to have expected or assumed,
that Kansas might recover prejudgment interest on dam-
ages caused by Colorado’s breach? The necessary predicate
to such a recovery was neither recognized nor even contem-
plated by this Court or, apparently, by the state parties to
original actions of this sort, until some 40 years thence.
In light of this history, it seems inescapable that any
participant in the drafting and negotiation of the Compact
would, if asked at the time, have reacted with marked sur-
prise to the notion that the Compact rendered its signatories
liable for an award of prejudgment interest such as that
sanctioned by the Court today. As both the Compact itself
and the parties’ post-Compact course of dealing make clear,
the “fair intendment” of the Compact very probably was
simply for the in-kind recovery of water as a remedy for
its breach. The Compact says nothing about the availability
of prejudgment interest on money damages as part of any
remedy or, for that matter, about the availability of money
damages as a remedy in the first instance. It contemplates
the delivery of water from Colorado to Kansas, pure and
simple. See Arkansas River Compact, reprinted in App.
to Brief for Kansas A–1. When Kansas filed its complaint
in this matter, “it sought only a decree commanding Colo-
rado ‘to deliver the waters of the Arkansas River in accord-
ance with the provisions of the Arkansas River Compact.’ ”
Third Report § XI, at 98. Cf. Colorado v. Kansas, 320 U. S.
383, 391 (1943) (discussing Kansas’ prayer for relief in the
form of “an apportionment in second feet or acre feet”). Not
until our decision in Texas v. New Mexico, supra, did Kansas
amend its complaint to include a claim for monetary dam-
ages. See Third Report § XI, at 98. Neither Kansas nor
Colorado appears ever to have anticipated or assumed, much

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25 Cite as: 533 U. S. 1 (2001)
Opinion of O’Connor, J.
less expected, that the Compact might result in a monetary
award of prejudgment interest over half a century after
its signing.
The Court ignores all of this in awarding prejudgment
interest to Kansas, seizing instead upon the compensatory
rationale behind the criticism of the common law rule and
awards of prejudgment interest on unliquidated claims for
damages in general. See ante, at 10–11. I do not dispute
that awards of interest are compensatory in nature or that,
as a general matter, “a monetary award does not fully com-
pensate for an injury unless it includes an interest compo-
nent.” Ante, at 10; see also National Gypsum Co., 515
U. S., at 195, n. 7. But, as the Court itself recognizes, see
ante, at 11, our precedents make clear that, at least today
and in the absence of a governing statute, awards of prejudg-
ment interest on unliquidated claims for damages are gov-
erned not by any “rigid theory of compensation for money
withheld,” but rather by “considerations of fairness.” Blau,
368 U. S., at 414 (internal quotation marks and citation omit-
ted); see, e. g., General Motors Corp. v. Devex Corp., 461 U. S.
648, 651–653, and n. 5 (1983); Funkhouser, 290 U. S., at 168–
169. This is especially so where, as here, we are dealing
with suits by one governmental body against another. See
West Virginia v. United States, 479 U. S. 305, 309–312 (1987);
Board of Comm’rs of Jackson Cty., 308 U. S., at 349–353.
There is nothing fair about awarding prejudgment interest
as a remedy for the Compact’s breach when all available evi-
dence suggests that the signatories to the Compact neither
intended nor contemplated such an unconventional remedy.
Many compacts between States are old; suits involving com-
pacts concerning water rights are late in starting and are
invariably long pending; and, because statutes of limitation
or the doctrine of laches is rarely available to preclude the
steady buildup of prejudgment interest, the amount of such
interest can become quite large, as Kansas’ claim for approxi-
mately $41 million illustrates. See ante, at 9, n. 2. One

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26 KANSAS v. COLORADO
Opinion of O’Connor, J.
would think that, particularly in such circumstances, even
the most rudimentary conception of fairness would dictate
that the Court ought not to interpret a contract between
two States as exposing one of them to liability under a novel
legal principle some 50 years later without some indication
that the States might have contemplated such exposure in
conjunction with the contractual rights and duties expressed
in their compact. Contrary to the Court’s apparent belief,
see ante, at 11–12, n. 4, nothing about such a contextualized
historical approach would create an across-the-board incen-
tive for the continued breach of interstate compacts entered
into before 1987, especially given the prospect of large and
uncertain damages awards. Had Kansas and Colorado an-
ticipated or even suspected what the Court today effects,
they almost certainly would have negotiated a provision in
the Compact to address the situation. States in the future
very likely will do so in the wake of the Court’s decision,
which creates a very different backdrop from the one against
which Kansas and Colorado operated. In the absence of
such a provision, however, “the loss [as to interest] should
remain where it has fallen.” Board of Comm’rs of Jackson
Cty., supra, at 353; see Third Report § XI, at 101 (“Prejudg-
ment interest here neither takes from those who benefitted,
nor goes to those who were injured”).
For the foregoing reasons, I respectfully dissent from the
Court’s award of prejudgment interest.