Opinion

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 Colorado'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 Arkansas 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 contract. 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. 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 Williston 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 contemplated that prejudgment interest would be awarded. The "venerable... rule" at common law was that prejudgment interest was unavailable on claims for unliquidated or, even more significantly, unascertainable damages. Milwaukee 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 negotiation 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 unliquidated claims," and that "the rule with respect to unliquidated claims has been in evolution"). To be sure, we had by then, along with other courts, criticized the common law rule that prejudgment interest was recoverable on claims for liquidated, 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 Jackson 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, prejudgment 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 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 ascertained" (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 apportionment 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 testimony, 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 determination of Kansas' damages). It thus is not surprising that, until 1987, we had never even suggested that monetary damages 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 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 damages caused by Colorado's breach? The necessary predicate to such a recovery was neither recognized nor even contemplated 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 surprise 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-l. When Kansas filed its complaint in this matter, "it sought only a decree commanding Colorado 'to deliver the waters of the Arkansas River in accordance 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 damages. See Third Report § XI, at 98. Neither Kansas nor Colorado appears ever to have anticipated or assumed, much 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 compensate for an injury unless it includes an interest component." 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 prejudgment interest on unliquidated claims for damages are governed 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 omitted); see, e. g., General Motors Corp. v. Devex Corp., 461 U. S. 648, 651-653, and n. 5 (1983); Funkhouser, 290 U. S., at 168169. 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 evidence suggests that the signatories to the Compact neither intended nor contemplated such an unconventional remedy. Many compacts between States are old; suits involving compacts 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 approximately $41 million illustrates. See ante, at 9, n. 2. One 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 incentive 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 anticipated 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 ("Prejudgment 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.