SUPREME COURT OF THE UNITED STATES No., Original State of Alabama, State of Florida, State of Tennessee, Commonwealth of Virginia, and Southeast Interstate Low-Level Radioactive Waste Management Commission, v. Plaintiffs, State of North Carolina, Defendant. Thursday, January 0, 0 The George Washington University Law School 00 H Street, N.W. Washington, D.C. 0 TRANSCRIPT OF HEARING Plaintiffs' Motion for Summary Judgment and Defendant's Motion for Summary Judgment BRADFORD R. CLARK, SPECIAL MASTER, PRESIDING
APPEARANCES: Special Master: BRADFORD R. CLARK Visiting Professor of Law Harvard Law School Massachusetts Avenue Cambridge, MA 0 () - For the Plaintiffs: Sidley Austin LLP By: KRISTIN GRAHAM KOEHLER 0 K Street, N.W. Washington, D.C. 00 () -000 For the Defendant: O'Melveny & Myers LLP By: JONATHAN D. HACKER Eye Street, N.W. Washington, D.C. 00 () -00 JOHN MADDREY North Carolina Department of Justice West Edenton Street Raleigh, North Carolina 0 () -00 ALSO PRESENT: JONATHAN BOND - - -
C O N T E N T S Page Plaintiffs' Motion for Summary Judgment Argument by Ms. Koehler, Counsel for the Plaintiffs... Argument by Mr. Hacker, Counsel for the Defendant... Rebuttal by Ms. Koehler, Counsel for the Plaintiffs... Defendant's Motion for Summary Judgment Argument by Mr. Hacker, Counsel for the Defendant... Argument by Ms. Koehler, Counsel for the Plaintiffs... Rebuttal by Mr. Hacker, Counsel for the Defendant... - - -
0 P R O C E E D I N G S SPECIAL MASTER CLARK: So, before we begin, I am recording this, and we may or may not make a transcript, depending on whether I or you feel it is necessary. In addition, I think after the hearing, depending on how it goes, I may want to have just a brief discussion with the counsel on where we go from here, what you expect to do in the intervening time. So we will come back to that. So why don't we start with the Plaintiffs, minutes. Plaintiffs' Motion for Summary Judgment Argument by Counsel for the Plaintiffs MS. KOEHLER: Good morning, Special Master Clark. Kristin Koehler of Sidley Austin on behalf of the Plaintiffs in this matter. Plaintiffs move for summary judgment on Count of the complaint, breach of compact. There are two separate and distinct reasons here as -- excuse me -- two separate and distinct ways in which North Carolina breached the compact, either one of which would entitle Plaintiffs to a remedy in this case and would conclude this matter.
0 First, North Carolina breached the compact when it failed to take appropriate steps to license a facility up to the point in time that it withdrew from the compact, and second, North Carolina breached the compact when it withdrew in bad faith. Again, either one of these constitutes a breach under the compact and would entitle Plaintiffs to a remedy in this action. SPECIAL MASTER CLARK: Now, so is your motion limited to breach of compact or contract? MS. KOEHLER: It is, Your Honor. SPECIAL MASTER CLARK: You are not seeking -- well, so all right. How do you see repudiation fitting into this scheme? MS. KOEHLER: Certainly. Our argument is that North Carolina breached the compact in the two ways that I have suggested, and that would entitle Plaintiffs to a remedy. Here, we have elected repudiation as that remedy. There could be other remedies here. There could be damages. SPECIAL MASTER CLARK: You mean restitution? MS. KOEHLER: Excuse me. Yes. SPECIAL MASTER CLARK: I am actually asking about the repudiation that you have alleged.
MS. KOEHLER: Okay. How do we see that fitting in? 0 SPECIAL MASTER CLARK: Yeah. Does that constitute breach in your opinion? MS. KOEHLER: Well, it is our position that when North Carolina ceased performance, that constituted a complete repudiation of the compact. Separate and independently, we also maintain that it constituted a total and material breach of the compact. SPECIAL MASTER CLARK: Well, okay. As I understand it, a repudiation can occur even in anticipation of breach. In other words, a party can say I do not intend to perform my obligations under a contract, and that could qualify as a repudiation, which counts. Is that an argument you are making, or am I just making this up? MS. KOEHLER: Well, it is certainly our position that when North Carolina ceased performance -- and it is undisputed that in December of, they ceased performance -- that that was a repudiation of the agreement. SPECIAL MASTER CLARK: Okay. So either way. MS. KOEHLER: Yep. A repudiation of their
0 obligations under the agreement. Now, there is no dispute with respect to the first way in which North Carolina breached the compact. There is no dispute here that North Carolina had an obligation under the compact, at a minimum, to take appropriate steps to ensure that an application for a license to construct and operate a facility was filed with and issued by the appropriate authority. SPECIAL MASTER CLARK: Is that the minimum or maximum as well? MS. KOEHLER: Obligation? SPECIAL MASTER CLARK: Yeah. MS. KOEHLER: Well, our position is that North Carolina did have an obligation to build the facility, but for the purposes of this motion -- SPECIAL MASTER CLARK: Under the compact or -- MS. KOEHLER: Yes. But for the purposes of this motion, we don't have to get there -- SPECIAL MASTER CLARK: Okay. MS. KOEHLER: -- because the parties disagree about that, but for purposes of summary judgment, you don't have to resolve that issue.
0 SPECIAL MASTER CLARK: Your claim is based on Article (c) of the compact? MS. KOEHLER: That at a minimum -- SPECIAL MASTER CLARK: Yeah. MS. KOEHLER: -- they had to take appropriate steps. They acknowledge that. So the parties are in complete agreement here. We are also in complete agreement that that obligation existed from the moment they became the host State up until the moment that they withdrew from the compact. Indeed, you see nowhere in their papers that they suggest that they did not have that, that duty to take appropriate steps. SPECIAL MASTER CLARK: If they had withdrawn upon being named a host State, would they have violated, would they have breached the compact? MS. KOEHLER: Our position, Professor Clark, is that although they had a right to withdraw under the compact, they had to withdraw in good faith, and so if, as you pose it, on the day they were designated as the host State and they then decided to withdraw, would that -- the question would become does that constitute, constitute bad
faith. 0 SPECIAL MASTER CLARK: Yeah. MS. KOEHLER: And that would be the issue to be determined. It is certainly different than our scenario here because they didn't decide -- SPECIAL MASTER CLARK: Uh-huh. MS. KOEHLER: -- to withdraw on the first date. SPECIAL MASTER CLARK: And your suggestion in the papers is that by receiving and accepting money from the Commission, it became bad faith to withdraw? MS. KOEHLER: Well, certainly, our position is that while they argue they had a right to withdraw -- that is their position, they had a right to withdraw -- our position is that they had to do it in good faith, and so here where you have a scenario where they don't only spend just their money, but they take $0 million of the other States' money -- the States had no obligation to do that -- they stopped performing, and then on the eve of a sanctions hearing when they are going to be held accountable for their actions, they completely withdraw. And this, I might add, is over an -year period. So it is not as if they were designated the host State; a day later, they said, "Oh, no,
0 0 we can't do this." It is a very different scenario. SPECIAL MASTER CLARK: Can I just step back? Let's just step back for a minute. Who initiated the idea of payments by the Commission? Is that in dispute? MS. KOEHLER: I don't believe that it is in dispute. North Carolina requested funding from the Commission, and the Commission had a means through the party States, and the Commission had a means to collect fees and surcharges and agreed to fund North Carolina. SPECIAL MASTER CLARK: All right. Now, at the point that the Commission agreed to fund North Carolina, did it seek or receive any additional assurances from North Carolina as to how it would proceed at that point? MS. KOEHLER: At the time the party States made the determination to begin funding North Carolina, they did it in reliance on North Carolina's obligations under the compact. Everybody fully expected here that North Carolina -- SPECIAL MASTER CLARK: So it was a way to facilitate North Carolina's ability to perform under the compact? MS. KOEHLER: Exactly, exactly. In order to
0 assist, in order to expedite, really in reliance on the compact. SPECIAL MASTER CLARK: So the Commission really just didn't expect any additional performance. It just wanted North Carolina to live up to whatever compact obligations it had. MS. KOEHLER: North Carolina had a preexisting duty under the compact to take appropriate steps towards licensing a facility, and so that money was given with an expectation to assist North Carolina but always done in reliance on the compact. SPECIAL MASTER CLARK: I take it that there were a series of rebuts up until the very end. MS. KOEHLER: Correct. SPECIAL MASTER CLARK: North Carolina would say, "Gee, we need some more money. This is more expensive than we thought. Can we have some more money?" At any point, did the Commission say, "Well, you know, this is getting expensive. We will give you some more money, but you have got to give us some additional assurance that you are actually going to complete this facility or license this facility or something"?
0 MS. KOEHLER: That -- SPECIAL MASTER CLARK: Were there any exchanges of that nature? MS. KOEHLER: I mean, certainly, that occurred throughout this whole time period, and you see in the record, North Carolina's repeated promises and repeated commitments, were committed to this process, were going to do this. It is really only at the very end, right around the time that they stopped performance, that they begin to change their tune and say, "Oh, no, it is really your obligation to fund here," which it is not under the compact and certainly under no separate agreement or legally cognizable relationship the Commission, the party States, or North Carolina entered into. SPECIAL MASTER CLARK: Well, so let me just -- let me just ask this. Let's assume -- and I know you disagree with this to some extent, but let's assume that North Carolina had a right to withdraw from the compact before it received any funding from the Commission, either because it just decided, you know, it wasn't worth it, the benefits weren't great enough, whatever, or just, you know, it was
0 impossible to do. If that is true, could you characterize the Commission's payments as a way to induce North Carolina not to exercise its otherwise freestanding right to withdraw? In other words, is that a fair characterization? MS. KOEHLER: Well, I think based on the record here, it's not. There was no suggestion from North Carolina at any point in this, whether they were thinking it or not. There was no suggestion to the Commission, "We are going to withdraw unless you provide us with -- with additional money." So I don't think that that -- that occurred. SPECIAL MASTER CLARK: Didn't they consider withdrawing initially? MS. KOEHLER: Well, certainly at the outset -- SPECIAL MASTER CLARK: Yeah. MS. KOEHLER: -- at the very, very beginning, but I think those are -- SPECIAL MASTER CLARK: How soon -- what was the relationship between that decision and the funding? Was there any -- MS. KOEHLER: Those are disconnected. SPECIAL MASTER CLARK: Disconnected.
0 MS. KOEHLER: They considered it at the outset, but they decided not to do that. Funding occurs later in the process, and the North Carolina authority initially appropriated money for the facility after it made the decision not to withdraw. So those two facts are disconnect. SPECIAL MASTER CLARK: Okay. MS. KOEHLER: So, again, Professor Clark, it is our position that when they stopped in ', that is a complete cessation of performance. It is a breach. It is a repudiation, and it entitles us to a remedy. And indeed, as we discussed in our papers briefly, the Commission has already made that determination that -- that North Carolina has breached the compact. SPECIAL MASTER CLARK: I have to tell you just I don't find that argument very persuasive, but you are certainly entitled to make it, and the Supreme Court, you know, eventually may agree with you. But I think where the compact is not explicit with respect to referring any and all disputes to the Commission for its exclusive determination, I don't think we could really read that into the compact.
0 MS. KOEHLER: Well, certainly, our compact language is different, but it does provide that the Commission is the judge, and based on the text of the compact, that is pretty strong language. SPECIAL MASTER CLARK: I think in the preliminary report, I concluded in essence, although I am certainly willing to be persuaded to the contrary, that the Commission's authority in that regard was with respect to imposing sanctions on members up to and including, you know, the amount of the compact, but, you know, I don't think it was intended to provide this type of post-conflict remedy for members who withdraw. MS. KOEHLER: Right. Well, certainly, the Commission has made a breach determination, but separate and apart from that, we think just based on the facts, on the record that you have before you, that it is clear that North Carolina breached the compact by ceasing performance. We don't think its absolute or its arguably absolute right to withdraw changes that analysis. SPECIAL MASTER CLARK: So let me ask you. So, if North Carolina had not ceased to perform in or repudiated at that point and had continued to seek the
0 license and then withdrew, would we be here? Would you be here? MS. KOEHLER: Well, certainly, the withdraw in bad faith in our view is based on -- SPECIAL MASTER CLARK: Is that based on the fact that they didn't even attempt to play the process out to its conclusion? What if they had applied for a license and it was denied, and then they said, "Well, we gave it our best shot. We withdraw"? MS. KOEHLER: I mean, certainly, they -- they had -- under the compact, their obligation is that they have to continue to take appropriate steps, and they stopped doing this. SPECIAL MASTER CLARK: Forever? MS. KOEHLER: Well, I mean, certainly, the compact says that you have to continue to take appropriate steps, and your point as to forever, there is a right to withdraw in the compact, but our position is they have to continue -- SPECIAL MASTER CLARK: What if they applied for a license five times and it is just constantly denied, and they say, "Well, we have done all we can"? MS. KOEHLER: Well, under the compact --
0 SPECIAL MASTER CLARK: Is that bad faith at that point, or is that a violation? MS. KOEHLER: Well, they are still trying. They are still trying to take appropriate steps to get a license, but under the compact, which they remained a member of until ', they are required to keep taking appropriate steps. If at that point they then withdraw, that's a different issue, but the issue is while they are still a member of the compact -- SPECIAL MASTER CLARK: Right. I understand that. MS. KOEHLER: -- they have to continue to do that, and then once they decide to withdraw -- SPECIAL MASTER CLARK: And honestly, that seems to me to be your strongest claim, that they did not withdraw, they -- MS. KOEHLER: That's exactly right. I mean, if they withdrew on December th, perhaps, you know, there would be a different view here, but that is not what happened. And under United Roasters, I think it is perfectly clear that a party under a contract, even if it contains a termination clause, you have to continue to perform up until
0 you exercise your rights under that termination clause. That is up to the final hour. So you have to keep performing under the contract, and they simply didn't do this here. We also don't think that North Carolina's duty of performance was somehow relieved because we stopped providing funding. There is just no basis in the record that our stopping of funding relieves them of their duty. It is really -- it is actually quite remarkable that they make that argument, that they made it -- SPECIAL MASTER CLARK: Well, what is interesting to me is that you both rely on the funding to some extent. I mean, you rely on the presence of the funding to demonstrate bad faith. Right? In the face of this repeated and substantial funding, they weren't free to withdraw or just stop performing, and they say, you know, "Well, we got this funding, we came to rely on it, and we came to expect it, and we couldn't continue without it." So it seems to me that the funding is obviously a central issue. MS. KOEHLER: Right. SPECIAL MASTER CLARK: How it fits is the question.
0 MS. KOEHLER: Because North Carolina, although in their brief they do suggest that they came to rely on this, there was no suggestion that that changed the relationship between the parties. They don't contend that there was any type of legal agreement between the parties as a result of this funding or that there is some new cognizably -- SPECIAL MASTER CLARK: So the Commission did not expect any additional benefit from the funding? MS. KOEHLER: When the Commission provided this funding to move this process along, all these party States were committed to doing this and believed, in reliance on the compact, that North Carolina -- SPECIAL MASTER CLARK: So it was a voluntary payment? MS. KOEHLER: The Commission was not required to fund under the compact. It was not required to do so, and there was no, you know, subsequent relationship requiring it to do so. SPECIAL MASTER CLARK: And they expected nothing in return for the funding? MS. KOEHLER: I mean, it expected -- SPECIAL MASTER CLARK: Other than performance --
0 MS. KOEHLER: Exactly. SPECIAL MASTER CLARK: -- under the compact. MS. KOEHLER: It expected that North Carolina would adhere to its obligations under the compact. Now, as a result of this breach by nonperformance, without any justification, Plaintiffs' position is that they are entitled to a remedy here, and we have elected, as I started to say at the outset, restitution of the $0-million benefit, the party States through the Commission -- SPECIAL MASTER CLARK: Before we get to restitution, if you were to seek expectation damages, what would they be? MS. KOEHLER: Well, certainly, that's something that we would have to prove up. There is a variety of ways that we could go here. SPECIAL MASTER CLARK: Because it seems to me that the expectation damages would almost certainly be less than restitution damages. MS. KOEHLER: They could. They could actually be more in this, this scenario. We have not, certainly, at this stage in the proceedings, undertaken that analysis. We could go either reliance damages, expect damages. We can
0 pursue damage. SPECIAL MASTER CLARK: Are you entitled to seek whichever you prefer, or is there some limit on which you can seek in those circumstances? MS. KOEHLER: Well, you know, it's clear under the law that parties can elect remedies. We elected the restitution remedy here. As you recognized at the last argument, in terms of fashioning a remedy, it may be logical to look at the money that the Commission and the party States conferred on North Carolina, and we think that that is logical too, and that is why we have elected to go this route. Certainly, we can have a trial, and we can prove up other damages if we have to go that route, but we have elected restitution. SPECIAL MASTER CLARK: And are there any factual disputes with respect to the restitution, the amount of restitution? MS. KOEHLER: Well, it is undisputed how much money was provided. SPECIAL MASTER CLARK: Was provided. Right. MS. KOEHLER: And it's undisputed, the process
0 through which it was provided. SPECIAL MASTER CLARK: The dispute is over how you characterize it? MS. KOEHLER: Who was the money -- you know, who -- SPECIAL MASTER CLARK: Was it a bad debt and so forth. MS. KOEHLER: Exactly. Exactly. And those really are legal questions which you can resolve right now. There's really -- on our motion on the breach of compact claim, there are no outstanding factual issues. SPECIAL MASTER CLARK: So let me ask about that for a moment. So both sides filed statements of undisputed facts, and both of you filed responses to the other. Do you think there are sufficient undisputed facts at this stage to rule in favor of your motion? MS. KOEHLER: I do, Professor Clark. If you look at our statement, by and large, we do not dispute. There are very few disputes here, and you will see the same if you look at North Carolina's. Their biggest dispute is perhaps that I called Governor Hunt "Governor Hunt" instead of "former Governor Hunt." So there are not material issues of
0 fact that are in dispute. If you really -- yes, we both had submissions, but if you really look at those submissions -- SPECIAL MASTER CLARK: So the facts surrounding the cessation of performance and repudiation, if that is what occurred, are not in dispute in? MS. KOEHLER: We do not believe they are. The record is perfectly clear that they stopped performance on December th,. SPECIAL MASTER CLARK: Now, they have asserted some defenses such as frustration of purpose or impracticability. Are facts in dispute regarding those defenses? MS. KOEHLER: I don't believe that they are. If you look at their defenses, which they say that the two -- let me start with the first two. The reason that the Commission -- the reason why they are entitled to a defense of impracticability is because the Commission stopped funding. In order to be entitled to that defense, it has to involve an event, the underlying assumption upon which -- SPECIAL MASTER CLARK: Well, that is not the only ground they assert, is it? MS. KOEHLER: No. That's the first one.
0 SPECIAL MASTER CLARK: Yeah. MS. KOEHLER: And certainly, there is no requirement under the compact. The second one is that South Carolina withdrew from the compact and, therefore, eliminated this alleged monopoly. Again, fundamental premise of the compact that there was a right to withdraw in the compact, so nothing has changed there. They also say increased costs or change in the marketplace, but the law in that is clear that that is not enough. Increased costs are not enough to entitle them to that defense. So, no, they are not entitled to any kind of frustration of purpose, impracticability defense there. SPECIAL MASTER CLARK: Okay. Well, all right. So I think your minutes are up. MS. KOEHLER: All right. Thank you. Plaintiffs' Motion for Summary Judgment Argument by Counsel for the Defendant MR. HACKER: Good morning, Professor Clark. Jonathan Hacker of O'Melveny & Myers for Defendant North Carolina, and with me is John Maddrey from the Office of the
0 Attorney General. I think I should start this morning where we left off last time, at the end of the last proceeding with your report, and some of the questions this morning and answers I think help clarify what was I think the one remaining issue, at least the most important remaining issue, and that was whether or not there was a separate supplemental agreement either in addition to the compact or that it somehow impliedly altered a part of the contract, and I think the answer to that now is no. I was certainly prepared to argue that, that there is just zero evidence of that in the process of discovery, the entire point of which was to establish the existence of a supplemental agreement between the Commission and North Carolina, and you heard counsel this morning concede that there was no such agreement, no expectation of anything additional, no consideration. It just doesn't exist. So that issue I think is completely out of the case, and it was out of the case even before this morning because the other side's briefs don't even purport to establish it. What they argue, again, you heard this morning, were three bases for summary judgment on the grounds on
0 Count of the compact, the first that the compact was breached because the Commission said it was breached, and I think we have been through that one. Unless you have any questions about it, I don't think it's worth spending time on this morning. The second argument, the second two arguments, the second argument is that the withdrawal itself was a bad exercise, although a contract, rather, was a bad-faith exercise of that right, and the third argument is that, leaving the withdrawal aside, the months prior to withdrawal, the suspension of performance was the breach. I will briefly address the withdrawal point, which I don't think has any legal merit under the terms of the compact. Indeed, one of their own cases flatly rejects -- flatly rejects the proposition that when you have an unconditional contractual right to terminate or withdraw from the contract, that that is conditioned upon even the duty of good faith. That is the Atlantic City case that they emphasized repeatedly in their briefs. SPECIAL MASTER CLARK: Is there any -- and this may not be right at this point, but when the Commission was providing North Carolina with the funding to seek the license, North Carolina over time made a series of
0 statements to the Commission, almost promises, if you will, or at least representations that, "We fully intend to, you know, seek a license. We fully intend to site and operate a facility," whatever. I mean, there were a number of these statements, right, over time? Do those affect the analysis of good faith in this context, those representations? MR. HACKER: Well, I suppose they affect it, but we have to be very clear about what the statements were. There were statements, and I don't think anybody disputes the accuracy of them. They were statements they remained committed to the process, and there is no evidence that they didn't. North Carolina kept spending money, and it was all spent, and there is no evidence, again, with months of discovery that the money was spent on, you know, flower bushes for the Governor. They were all spent on this process. SPECIAL MASTER CLARK: Wasn't there also a statement that they were committed to operating a facility? Honestly, I don't remember. MR. HACKER: No. The statements were -- even that
0 statement, I'm not sure. I don't have the, you know, catalog of the precise word, but they are all committed to -- even the statement "we're committed to doing this" was a true, accurate statement, supported by the record. There is no evidence of pretext here. There is no point at which they say "we are committed" and then behind the scenes we are sending money somewhere else. SPECIAL MASTER CLARK: Well, one of the -- MR. HACKER: We are spending the money on the process because they were committed to -- SPECIAL MASTER CLARK: Yeah. MR. HACKER: -- getting it done. SPECIAL MASTER CLARK: One of the -- often one of the requirements for bad faith or lack of good faith in the performance of a contract is dishonesty. Was North Carolina dishonest? Is there a dispute over there? MR. HACKER: There is no evidence. I mean, I suppose a party can assert anything the party wants to assert, but there is no evidence that at any point North Carolina was dishonest, and there is not, I don't think, an argument in the briefs. The closest one might come -- and what counsel
0 might suggest in reply -- is there was a period at the beginning of when the Commission -- the North Carolina's Representative Miller sent a memo to the Governor saying, "This isn't going to work, Governor." SPECIAL MASTER CLARK: Right. MR. HACKER: The process -- SPECIAL MASTER CLARK: They're not disclosing that today. MR. HACKER: Right. SPECIAL MASTER CLARK: At that point. MR. HACKER: And leave that to -- yeah. It didn't sent it to -- and because it was an internal matter with North Carolina to decide what North Carolina should do, given Miller's understanding of the circumstances. There's nothing in the memo that says "we ought to fake it, Governor." SPECIAL MASTER CLARK: Were there statements at that time by North Carolina? You know, there were those private statements or discussions going on behind the scenes. Were there statements at that time publicly or to the Commission saying "we remain committed" during that same period?
0 0 MR. HACKER: Absolutely. After that memo went to the Governor, the Governor -- the record shows. I mean, there's a paper record -- SPECIAL MASTER CLARK: Yeah. MR. HACKER: -- that just marches right through. You can read it week after week. The Governor's decision was to reject that advice, and it wasn't actually a concrete, solid recommendation, but what Miller was saying is you ought to consider this because it doesn't look like -- SPECIAL MASTER CLARK: Right. So this is just an internal -- MR. HACKER: This is the epitome of good faith. Miller is saying -- SPECIAL MASTER CLARK: An internal deliberation. MR. HACKER: Internal deliberation saying it doesn't look like this is going to work, it is going to be very hard to license this site. The Governor gets the memo, and rather than decide, yes, we are terminating our relationship, the Governor effectively says -- now, the subjective workings of his mind aren't in the record, but the reality of it is the Governor says, "No. We remain
0 committed to this," and you certainly understand why. The State has already spent tens of millions of its dollars, of its own taxpayers' money to accomplish this, and, you know, why -- so long as there is a realistic possibility in the Governor's mind, why let it go, and there's, you know, the prospect of a benefit of the establishment of the facility. SPECIAL MASTER CLARK: So, when the Governor decided to pull the plug on this project, how long -- what was the timing of that? When did he decide, and when did he inform the Commission, and did North Carolina receive any money or any additional funding during that interim period? MR. HACKER: Well, this period that we are talking about right now is early, and there is more money that comes in because the parties, per the Governor's decision to remain committed and try to work it out, they worked it out, and they got an additional -- is it $ million, I think in this period? So, you know -- SPECIAL MASTER CLARK: So, in other words, during discovery, did you -- did the parties figure out when the decision was made by North Carolina to stop performing, and when -- and what was that date --
0 MR. HACKER: Right. SPECIAL MASTER CLARK: -- and what was the relationship of that date to the time that North Carolina informed the Commission? MR. HACKER: There is a crucially important premise to your question that has to be clarified from the record, and that is the, quote/unquote, "stop performing." Right? Because the argument prior to withdrawal is that North Carolina stopped performing its obligations under the contract. It would be that date -- SPECIAL MASTER CLARK: Well, we can put that aside for a moment, but North Carolina informed the Commission, "We do not intend to take any further steps. We are going to wind down. We are instructing them to take an orderly shutdown." MR. HACKER: I understand, but that is precisely what I was getting at. That was -- that statement was made in December of. SPECIAL MASTER CLARK: Right. MR. HACKER: That was not, however, the date in which North Carolina informed anybody that it was not going to perform its obligations under the compact. That date was
0 July of - -- of when North Carolina withdrew from -- SPECIAL MASTER CLARK: Well, all right. Let's put that aside for a minute on the nonperformance. Just in terms of -- you don't think that the statement that "we're going to direct an orderly shutdown" is a repudiation? MR. HACKER: No. And let me explain why, if I could. The contract, as you heard this morning, we absolutely do agree with this. The compact obliges the host State. The sole duty under the compact is to take appropriate steps to license and site a facility. So the question is not do you always have to be doing something at every moment. The question is are you taking appropriate steps. From the very outset of -- SPECIAL MASTER CLARK: How is it appropriate to shut down the steps? MR. HACKER: Because that's -- the questions you were answering -- you asked this morning I think answered the question. For example, if it had been unable to license a site and it was conclusively determined there was no place
0 in North Carolina to license a site, it is hard to argue that it would be appropriate to keep spending money. SPECIAL MASTER CLARK: Well, was the decision to stop or to shut down the process based on a determination that there was no proper site, or was it based -- because there is evidence, isn't there, in the record that "if we don't get the money, we're going to stop"? MR. HACKER: But you have to go back to what -- SPECIAL MASTER CLARK: Wasn't it all about the money? MR. HACKER: It was very much about the money, but that's so important. That's what I want to get to. The resolution, February of, the first -- right after North Carolina is designated a host State and the relationship begins, all right, in the record, in paper, and the resolution enacted by a majority, presumably all of the Commission members, the Commission says we believe in the resolution it is, quote, "appropriate and necessary to provide financial assistance to the host State to help facilitate the process." That is at Appendix -- Plaintiffs' Appendix on page. It is a Commission resolution. That is the commitment of all --
0 SPECIAL MASTER CLARK: Give me that page again. MR. HACKER: Appendix page. SPECIAL MASTER CLARK: Okay. MR. HACKER: From the very outset of the relationship, the Commission -- this is the Commission speaking -- says, "It is appropriate and necessary to provide financial assistance." So the question throughout the relationship is what is -- what are appropriate steps, and from the very beginning of the relationship, the Commission and North Carolina agreed that it would not be the sole burden of the State to fund the -- in practice, it would not be expected that appropriate steps required a State to fund licensing -- SPECIAL MASTER CLARK: So you're saying -- MR. HACKER: -- solely out of -- SPECIAL MASTER CLARK: -- interpret the -- MR. HACKER: -- the taxpayers' funds. SPECIAL MASTER CLARK: -- host State's obligation under Article to take appropriate steps in light of the course of dealing with the parties. MR. HACKER: Exactly. Starting with that first statement and proceeding all the way throughout.
0 Nobody contended at any point that it was not appropriate for North Carolina or necessary -- again, this is the Commission's words -- "necessary" to facilitate this performance. The argument was -- and we don't disagree with it, Professor Clark -- that the Commission didn't have a duty, a contractual duty to do that, and that's correct, the point being that if they -- SPECIAL MASTER CLARK: Although didn't you think that at the time in? MR. HACKER: There was one letter from the Governor asserting in the process of, you know, fighting over this -- SPECIAL MASTER CLARK: Yeah. MR. HACKER: -- you know, that "we think it is your contractual obligation," but it is not the legal position we are submitting here today. SPECIAL MASTER CLARK: Right. I understand that. MR. HACKER: And it's obviously correct because the point is we couldn't sue them for breach. That is the sense in which they didn't have a duty. SPECIAL MASTER CLARK: Right.
0 MR. HACKER: But that is, more or less, irrelevant to the question as to whether or not there was an understanding between the parties as to what would constitute appropriate steps. If it was simply too expensive to lay it at the feet of the taxpayers, then it would not be an appropriate step for North Carolina to keep spending money on it. Imagine the cost of borrowing, the contractors, there is, you know, a war, something happened that made it impracticable. SPECIAL MASTER CLARK: So cost is relevant to appropriate steps. MR. HACKER: Absolutely. SPECIAL MASTER CLARK: If it became a trillion dollars, it wouldn't be appropriate? MR. HACKER: That is absolutely right, and that was acknowledged, as I say, by the Commission from the very beginning of the process. So what happens then in is South Carolina withdraws, which creates two problems; one, a problem for the Commission which is its source of money that it had been providing North Carolina dries up. SPECIAL MASTER CLARK: By the way, so North
0 Carolina facility is still operating? MR. HACKER: South Carolina facility. SPECIAL MASTER CLARK: South Carolina. That's what I meant. Yeah. MR. HACKER: Yes, yes, yes. That's correct. SPECIAL MASTER CLARK: Okay. Got it. MR. HACKER: So that created a problem for the Commission where it didn't have the money to provide -- that it heretofore regarded as appropriate and necessary, and it created a problem for North Carolina because it was -- you know, it had this expectation of basically a monopoly in the region, down the road when a facility did get licensed -- SPECIAL MASTER CLARK: Well, let me ask about that since you -- MR. HACKER: -- and established, and that was gone. SPECIAL MASTER CLARK: -- mention it, which is -- because that goes to your defense, in some sense. You know, you say North -- South Carolina withdrew, and that changed -- and would be a competitor, and that changed the expectations of the parties, but it seems to me that North Carolina understood that parties could withdraw. In fact,
0 you sought an amendment and obtained an amendment providing that parties could withdraw after your facility became operable. So doesn't that undercut your position that there was an unexpected change in the composition of the States? MR. HACKER: I have two answers. First of all, as to what constitutes appropriate steps, that is not even a defense. That's just, you know, looking around and looking at the facts and circumstances at the moment, so -- SPECIAL MASTER CLARK: No, right. I'm just saying assuming there is a breach, you have this defense of impracticability -- MR. HACKER: Right. SPECIAL MASTER CLARK: -- and frustration of purpose, and part of that was -- that's what made me think of it is you mentioned South Carolina's withdrawal, and that was one of the questions I wanted to ask you. In other words, is it your position that South Carolina's withdrawal in essence established a factual defense? MR. HACKER: Yeah. I think -- I think that is. SPECIAL MASTER CLARK: A factual defense --
0 0 MR. HACKER: That is our position because a contract can't preclude all possibilities that are out there. The whole problem as a frustration of purpose arises when -- SPECIAL MASTER CLARK: Doesn't it have to be an unanticipated change in circumstances? Wasn't this an anticipated change that the parties were free to withdraw? In fact, that is one of your strongest arguments, right, that you were free to withdraw? MR. HACKER: Right, but -- SPECIAL MASTER CLARK: So it's hard to argue at the same time that you were completely free to withdraw at any time, but, you know, gee, we couldn't imagine that anybody else would. MR. HACKER: But you have to evaluate the possibility that some might -- somebody might exercise what is a contractual right -- doesn't necessarily mean that you assume the contract is based on the possibility that, you know, they're going to do that, particularly, you know -- that is why we negotiated a change after the initial bargain was struck, you know, to protect against that, you know, down the future.
0 SPECIAL MASTER CLARK: Right. But you didn't negotiate as far as you could have. You could have said now that we have been chosen, nobody else can withdraw. MR. HACKER: That's right, but I don't think you're required to negotiate, you know, a textual change in the contract to prevent -- prevent against any possibility that might alter the terms of the bargain, you know, when they arise, and -- SPECIAL MASTER CLARK: Yeah. Okay. Well, we can -- MR. HACKER: I mean, yes, it was a possibility. The question is whether it is a realistic possibility, but I do want to emphasize it is not just a defense. I mean, I think the more important way of looking at it is whether given the fact that South Carolina had change which -- changed, you know, the costs and the benefits of performance at that time and what was deemed appropriate and necessary in terms of Commission funding, you know, was it appropriate for North Carolina to continue to do this without any promise, without any live promise of additional financial assistance. SPECIAL MASTER CLARK: Why didn't North Carolina
0 simply withdraw at that point in? MR. HACKER: Because it was the epitome of good faith not to. That's absolutely a crucial point here. We absolutely could have, under the contract, exercised our unambiguous, unfettered right to withdraw, but rather than do that -- and it's absolutely important to understand the record here. Rather than do that, we didn't say we stop, we are just not going to perform, we're done here, don't talk to us anymore. Look at the record. It is exactly the opposite. What we did was preserve the authority -- SPECIAL MASTER CLARK: Was North Carolina holding itself out as open to resume efforts if -- MR. HACKER: Absolutely. Not only holding itself out, we did resume efforts, and there is no contradiction in the record about that. We kept all the core samples. All the work that had been done were carefully preserved. The site was preserved. The authority was maintained and running. The records -- SPECIAL MASTER CLARK: Did you ever apply for a license? MR. HACKER: We never applied for it because we didn't -- that -- what we stopped was the continuing effort
0 to try to get a license because we didn't think -- SPECIAL MASTER CLARK: Well, isn't that the essence of the obligation under the compact to take appropriate steps to ensure that an application for a license to construct and operate a facility is bought an issue? MR. HACKER: But as we've just been discussing, the question is appropriate steps, and what North Carolina decided in December -- effectively in December of is absent the promise of additional funding here, it ultimately isn't going to happen. We need to, as we did in, discuss a way to continue the necessary and appropriate assistance. If it's not coming, it ultimately is going to have to be literally a waste of money. It would be like burning cash to just have people spending, doing stuff, that was ultimately going to be to no effect. That was the problem. Why would North Carolina continue to spend all kinds of money on a process that by hypothesis everybody agreed -- SPECIAL MASTER CLARK: What if you got the license?
0 MR. HACKER: -- wouldn't actually work? SPECIAL MASTER CLARK: What if you applied for the license and you received it? MR. HACKER: There was millions of dollars and a number of years yet to go. That was the problem. I mean, if the next day, if we're right on the cusp of getting the license and we just sort of said -- SPECIAL MASTER CLARK: How -- okay. MR. HACKER: -- we'd rather not, that would be a different case. SPECIAL MASTER CLARK: If we can get a sense, so what percentage of activity was complete that was necessary to apply for a license -- MR. HACKER: And the answer is -- SPECIAL MASTER CLARK: -- at the time -- MR. HACKER: The answer is we don't know because what we do know or the record shows is the whole -- SPECIAL MASTER CLARK: What remained to be done before you could apply for a license? MR. HACKER: We had to -- we had to finish determining, evaluating the site. It wasn't like we knew that there was, you know, one more year to go, one last
0 test. That was the whole problem is both -- all the parties recognized there was a ton of work, very expensive work yet to be done. We don't know how much. I mean, if you can imagine, you know, maybe the site is partly okay and that we have to get some other approval. It was going to be a continuing difficult process. That was I think recognized on all sides, and so it was not a situation where we can say now we were percent of the way there and in a fit of peak with percent left to go, we took our ball and went home. That is just not what the record shows at all. What the record shows is -- it's quite clear. You know, the Commission had been providing necessary and appropriate funding all along. The Commission source ran out. The Commission decided it didn't want to do that anymore, and the Commission understood there's a lot of work to do, but the Commission took the position at that point we don't have a duty and we're not doing it, the duty is entirely yours, you have to do it. There wasn't a question of -- SPECIAL MASTER CLARK: So your position is -- MR. HACKER: -- we both agree that we're very close.
0 SPECIAL MASTER CLARK: -- whatever you did or didn't do, it was appropriate? MR. HACKER: Well, I mean, not -- not in the abstract. Given the facts and circumstances in the record at the time, yes. It was appropriate to preserve the site, preserve all the records, keep the -- remember, the authority kept running -- SPECIAL MASTER CLARK: Do you think there are any facts in dispute that prevent ruling on the motion at this time? MR. HACKER: I think as to their claim that it was a breach, there would be facts in dispute because we submit -- at least facts in dispute because we submit given the record -- SPECIAL MASTER CLARK: What are the facts in dispute? MR. HACKER: The -- I would say the ultimate factual inference from their perspective as to whether or not there were -- SPECIAL MASTER CLARK: I mean -- MR. HACKER: -- appropriate steps. SPECIAL MASTER CLARK: -- I determine if further
0 discovery required to resolve any facts relevant to these motions -- to this motion. MR. HACKER: I don't think so, but I -- it's possible there may be, you know, more -- more to determine on whether or not there were appropriate steps. Our submission certainly on our motion is that given -- SPECIAL MASTER CLARK: Well, you haven't taken a position on that. MR. HACKER: Well, I was -- I mean, I understand. SPECIAL MASTER CLARK: You need to do that. MR. HACKER: Our -- but our position is given what the record shows about the facts and circumstances, as a matter of law, the Court can draw the inference. The only reasonable inference is that it was appropriate for us to preserve all the evidence -- SPECIAL MASTER CLARK: Sure. No, I understand -- MR. HACKER: -- preserve all the records, and -- SPECIAL MASTER CLARK: -- you think I can rule in your favor -- MR. HACKER: Right. SPECIAL MASTER CLARK: -- the fact that there are
0 enough facts to rule for you, but I -- in other words, are there -- I mean, do you dispute any of the facts that they rely on to support their assertion that there was a breach in? MR. HACKER: It would depend on the precise facts they came up and asserted. If they are asserting that it was a pretext and that we were faking it, we would certainly dispute that, but again, it's sort of a -- SPECIAL MASTER CLARK: Well, there's two -- MR. HACKER: It's a semantic point because -- SPECIAL MASTER CLARK: -- different things that -- MR. HACKER: -- we don't think -- SPECIAL MASTER CLARK: Put aside the -- MR. HACKER: There's neither a dispute in the record on that. SPECIAL MASTER CLARK: -- the bad-faith withdrawal argument for a moment. Let's just focus on the events. MR. HACKER: Right. And I'm saying there's a -- SPECIAL MASTER CLARK: And that's one of the bases. Those events -- MR. HACKER: Not -- SPECIAL MASTER CLARK: -- those factual events,
0 whatever transpired, are a form of basis for their claim that there was a breach at that time. Do you have any dispute with them over the facts that occurred, or are you both in agreement these are the facts, and you're saying, "Yeah, these are the facts, but we see them differently. We think we took appropriate steps. We think it was reasonable for us not to proceed without further funding," blah, blah, blah, "We don't disagree that we stopped and that we made these statements and that this happened and that happened"? In other words, just -- I'm talking about -- MR. HACKER: I'd say -- SPECIAL MASTER CLARK: -- purely factual, not application of facts or characterization of the facts or inferences, legal inferences from the facts, just the who, what, when, where, what-happened-here facts. MR. HACKER: I'm saying I think that the record -- the relevant record is undisputed, the factual record. All I'm saying is even as to the suspension of the -- not performance, but the suspension of the program at the time, there may be factual arguments that the other side would advance, which I think are unsupported by the record,
0 0 and therefore, there's no actual -- SPECIAL MASTER CLARK: Would or has? MR. HACKER: It depends -- there's footnotes that occasionally allude to the idea. There's a statement in one of the briefs that says this was pretext, and then there's no -- but they don't point to any evidence of pretext. They just assert that it was pretext. I don't know what the pretext is. We said we're not doing it because, you know, there was no funding, and that was necessary and appropriate to continue the project. SPECIAL MASTER CLARK: Pretext is a characterization. MR. HACKER: I understand that. There's some suggestion in the briefs that -- SPECIAL MASTER CLARK: I mean, they can characterize your facts as a pretext if they want. I guess, is that a factual dispute? MR. HACKER: That wouldn't be. That's why I'm saying I don't know what -- if they mean pretext, just to be kind of an argumentative point, but the underlying facts -- SPECIAL MASTER CLARK: But if it's a state-of-mind argument, then that's in dispute?
0 MR. HACKER: That would be right, if they're asserting that we had some ulterior plan all along, you know, and that's what this whole -- the whole Miller argument, which they don't really make aggressively outright, and that's why -- that's the only -- I don't mean to be, you know, resisting your questions, but I -- SPECIAL MASTER CLARK: Oh, no, no. I'm just -- MR. HACKER: -- literally don't -- SPECIAL MASTER CLARK: -- trying to understand. MR. HACKER: -- necessarily know what their argument with respect to Miller. I think the facts regarding Miller are undisputed. The memo says what it says. It doesn't say to the Governor, "Let's pretend, Governor. Let's keep acting like we're doing this, even though we don't want to." He says we ought to terminate, and the Governor says no. There's no evidence that the Governor then takes that and, as I say, you know, funds it for local schools or takes the money and puts it in roads. They may say that, but that is a creative factual dispute. The record doesn't show it. The underlying historical facts, we submit are, indeed, undisputed. That's our view of the historical